Annual Report

Transcription

1 Annual Report Brambles Annual Report Page 1

2 Brambles Limited is a supply-chain logistics company operating in more than 50 countries, primarily through the CHEP and IFCO brands. Brambles is listed on the Australian Securities Exchange (ASX) and has its headquarters in Sydney, Australia. The Group specialises in the provision of Pooling Solutions and associated services, focussing on the outsourced management of returnable pallets, crates and containers. It has three Pooling Solutions segments: Pallets, Reusable Plastic Crates (RPCs) and Containers. In addition, Brambles owns the information management solutions business, Recall. CONTENTS Letter from the Chairman & the CEO 1 Operational & Financial Review 2 Strategy Scorecard 14 Board & Executive Leadership Team 16 Corporate Governance Statement 19 Directors Report Remuneration Report 32 Directors Report Other Information 50 Shareholder Information 54 Financial Report 57 Auditors Independence Declaration 123 Five-Year Financial Performance Summary 124 Glossary 125 Contact Information 128 Brambles Limited ABN Brambles Annual Report Page 2

3 LETTER FROM THE CHAIRMAN & THE CEO 9 September 2013 BRAMBLES CEO TOM GORMAN (L) AND CHAIRMAN GRAHAM KRAEHE AO (R) The 2013 financial year was significant in the 138- year history of Brambles. Not only did we deliver another solid set of financial results while continuing to invest substantially for the long term, we also took a series of important steps toward becoming a more focused organisation. Central to the concept of focus is the first of our shared values: All things begin with the customer. We are proud of the progress we are making in getting closer to our customers. We will continue to strive to make Brambles the most customer-centric organisation in our industry. We have set out more detail about how our shared values drive our strategy and detailed commentary on our financial results in the Operational & Financial Review. We are committed to creating value for all of our stakeholders, continuing to enhance our position as the world s leading supply chain equipment Pooling Solutions company and delivering our strategy to grow profitably and deliver superior returns for shareholders over the long term. In the five years ended 30 June 2013, Brambles total shareholder return 1 was 47%, compared with 21% for Australia s benchmark S&P/ASX200 Index. We are also committed to delivering results year on year. In the year ended 30 June 2013, Brambles total shareholder return was 57%, compared with 46% for the S&P/ASX200. In FY13, in constant currency terms compared with FY12, sales revenue was up 6% and operating profit was up 10%, and we declared dividends of 27.0 Australian cents per share, up 1.0 Australian cent per share. (Full dividend details are on page 54). We believe our decision to demerge our information management business, Recall, as a separate company on the Australian Securities Exchange, will enhance our ability to focus on our core business activities. While Recall had a challenging year in FY13, the demerger, expected to be completed in December pending shareholder and relevant court and regulatory approvals, will free Recall to concentrate on its business, and enable Brambles to concentrate on its Pooling Solutions strategy. More detail about Recall s strategy and outlook will be provided in the demerger scheme book, which we expect to send to shareholders in late October STRATEGY As we have communicated previously, we use four key themes to govern the implementation of our strategy: Diversification, Cost Leadership, Go To Market and People & Leadership.The Strategy Scorecard on pages 14 and 15 highlights our progress against all these areas during FY13, and sets out our focus areas as we look to the future. While we are proud of the achievements of recent years, we are committed to driving stronger returns for shareholders, by allocating capital to high-value growth opportunities, by delivering operational and asset efficiencies and by leveraging our global scale and network capacity. One highlight of this progress is our continued expansion of the global Intermediate Bulk Containers (IBCs) business following the acquisition in December 2012 of Pallecon, an IBC pooling services provider with more than 30 years operating experience. We have now merged Pallecon s operations in Europe and the Asia-Pacific with the IBC operations of CHEP and the CAPS business in North America to form CHEP Pallecon Solutions. Elsewhere, we continued to diversify our earnings base through the strong expansion of our Reusable Plastic Crates (RPCs) operations, through growing our Pallets operations with new customers and in under-penetrated and emerging markets, and through the growth of the CHEP Aerospace Solutions operations. We continue to innovate alongside our customers, developing and launching new and improved products and services, in particular pallets for use in promotional in-store display. In the area of cost control, we are continuing to deliver synergies from integrating IFCO and to deliver operational efficiencies under the global Pallets structure introduced in Each of our three Pooling Solutions segments Pallets, RPCs and Containers now has a single leadership focus. SAFETY & SUSTAINABILITY Although we continue to pursue our goal of Zero Harm, tragically, two fatalities impacted Brambles during the Year. One involved a contractor who passed away as a result of a traffic incident in the IFCO Pallet Management Services operations and another involving a third-party service provider who passed away after an accident at a CHEP South Africa timber plantation. More detail on our efforts to eliminate such tragic events, as well as broader commentary about our progress against our Zero Harm charter and broader Sustainability strategy are included in the Operational & Financial Review on pages 5 and 6. OUTLOOK We have entered FY14 in a strong position to continue to deliver profitable growth to our shareholders and invest in and develop our business over the long term. When we announced our FY13 results, we provided guidance for FY14 for Underlying Profit 2, excluding any contribution from Recall and subject to unforeseen circumstances, of US$930 million to US$965 million at 30 June 2013 foreign exchange rates, reflecting anticipated growth of 4% to 8% at those rates. As we look to deliver another year of growth for shareholders, we wish to express our gratitude to our 18,000 employees worldwide, the company s management and our fellow Directors for their ongoing commitment and support. Graham Kraehe AO Chairman Tom Gorman CEO 1 Total shareholder return reflects share price movements and reinvestment of dividends over a specified performance period. Bloomberg data are used for the purposes of comparison. 2 Brambles defines Underlying Profit as profit from continuing operations before finance costs, tax and Significant Items. Brambles Annual Report Page 3

4 OPERATIONAL & FINANCIAL REVIEW ABOUT BRAMBLES OVERVIEW OF OPERATIONS Brambles Limited is a supply-chain logistics company operating in more than 50 countries, primarily through the CHEP and IFCO brands. Brambles is listed on the Australian Securities Exchange (ASX) and has its headquarters in Sydney, Australia. The Group specialises in the provision of Pooling Solutions and associated services, focussing on the outsourced management of returnable pallets, crates and containers. It has three Pooling Solutions segments: Pallets, Reusable Plastic Crates (RPCs) and Containers. Brambles businesses predominantly serve the consumer goods, dry grocery, fresh food, retail and general manufacturing industries. The Group has specialist businesses serving the automotive manufacturing, aerospace and refining sectors. At 30 June 2013, the Pooling Solutions operations employed more than 13,500 people and owned approximately 450 million pallets, crates and containers through a network of more than 850 service centres. In addition, Brambles operates an information management solutions business, Recall, which provides secure management and destruction services for documents and digital media to customers in 23 countries. Recall employs more than 4,500 people and operates a network of more than 300 information centres. On 2 July 2013, Brambles announced it intended to demerge Recall as an independent company listed on the ASX. Brambles expects to complete the demerger by the end of the 2013 calendar year. SHARED VALUES Brambles shared values are a core component of the Group s culture and are as follows: - All things begin with the customer; - We have a passion for success; - We are committed to safety, diversity, people and teamwork; - We believe in a culture of innovation; and - We always act with integrity and respect for the communities in which we operate and the environment. OPERATING MODEL Through its Pooling Solutions business, Brambles enhances supply chain performance for customers by helping them transport goods through their supply chains more efficiently, sustainably and safely. Brambles provides standardised reusable pallets, crates and containers to customers from its service centres, as and when customers require. Customers use the equipment to transport goods through their supply chains, then either arrange for its return to Brambles or transfer it to another participant in the network for that participant to reuse. Brambles retains ownership of its equipment at all times, inspecting and repairing it as required to maintain consistent levels of quality. By participating in Brambles pooling system, customers eliminate the need to purchase and manage their own pallets, crates and/or containers and benefit from the superior scale of Brambles network and systems, its asset management knowledge and experience and its continuous development of new and innovative solutions. Brambles Pooling Solutions operations predominantly generate sales revenue from the rental and other service fees that customers pay based on their usage of the Group s equipment. SHAREHOLDER VALUE The service and value Brambles provides through its Pooling Solutions business, the quality of the Group s customer relationships and the scale of its networks and invested capital base create the foundation of its value proposition for investors. As a result of this value proposition, Brambles has been able to demonstrate superior rates of sales growth and delivered consistently high levels of return on capital relative to the benchmark Australian share index. 1 BUSINESS STRATEGIES & FUTURE PROSPECTS Brambles strategic focus is to create superior and sustainable value for its customers, shareholders and employees. The Group implements its strategy under four key themes: - Diversification expanding into more customer segments, broadening the range of products and services and growing geographically; - Cost leadership delivering a low-cost business model that leverages its global scale to create sustainable competitive advantage; - Go to market strengthening its brand position and enhancing the customer experience through continuously improving the quality of its products and services; and - People and leadership attracting, developing and retaining the right individuals and teams that can enhance its culture and bring the required capability for sustainable success. The Group has access to a broad range of opportunities to continue to invest in value-adding products and services for customers and expand its Pooling Solutions business at the same as delivering attractive returns to shareholders. The principal factors that define growth opportunities in the Pooling Solutions business within which the Group can create value for customers while supporting its investment proposition for shareholders are: - Multiple parties use a common asset (i.e. a pallet, crate or container) to transport goods throughout the supply chain; - Assets flow freely and at high velocity throughout the supply chain, creating complexity that Brambles can manage more effectively through a pooled environment than customers could alone; - Ownership of assets is not a source of competitive differentiation to the asset user; and - Pooling of assets can create a benefit in which all supply-chain participants can share. The Strategy Scorecard on pages 14 and 15 sets out the Group s progress in relation to delivering its strategy. This scorecard includes the identification of focus areas for future prospects as well as execution risks and associated mitigating actions. Further details of strategy and execution risk in the context of Brambles risk management framework are provided in the Significant Risk & Uncertainties section on page 7. 1 Based on data published by Bloomberg for the five years ended 31 December 2012: Brambles compound average growth rate in sales revenue was 9%, compared with negative 2% for the S&P/ASX200 Index; Brambles five-year average post-tax return on capital was 14%, compared with 4% for the ASX200. Brambles Annual Report Page 4

5 OPERATIONAL & FINANCIAL REVIEW CONTINUED PERFORMANCE DRIVERS & METRICS The Group monitors performance and value creation through nonfinancial metrics (such as customer loyalty, safety performance and employee engagement) and through financial metrics (such as those covering sales revenue, profitability, return on capital and shareholder returns). Throughout Pooling Solutions, there are three key drivers of Brambles sales revenue growth: - General increases in sales volumes in line with economic or industry trends (a relatively stable variable because the majority of Brambles sales revenue comes from customers in the consumer staples sector); - The rate at which the group expands the penetration of its operations (often described as net new business wins 2 ); and - Movements in pricing. Brambles key focus in terms of measuring profitability is Underlying Profit, the main drivers of which in Pooling Solutions are: - Transport, logistics and asset management costs (including external factors such as fuel and freight prices, as well as labour costs); - Plant operations costs in relation to management of service centre networks and the inspection and repair of assets (including labour costs and raw materials costs); - Other operational expenses (primarily overheads such as selling, general and administrative expenses); and - Depreciation, as well as provisioning for irrecoverable pooling equipment. Brambles calculates return on capital invested by dividing Underlying Profit by Average Capital Invested 3. The main driver of Average Capital Invested in Pooling Solutions is capital expenditure on pooling equipment. The main drivers of capital expenditure are the rate of sales growth as well as asset efficiency factors: i.e. the amount of pooling equipment not recoverable or repairable each year (and therefore requiring replacement) and the frequency with which customers return or exchange pooling equipment. Brambles main capital cost exposures are for raw materials, primarily lumber and plastic resin. The Group also monitors Brambles Value Added (BVA), which measures value generated over and above the cost of capital used to generate that value. BVA is calculated by subtracting from Underlying Profit the product of Average Capital Invested multiplied by 12% (a notional representation of pre-tax cost of capital). 2 Net new business wins are the change in sales revenue in the reporting period resulting from business won or lost in that period and the previous financial year. The revenue impact of net new business wins is included across reporting periods for a total of 12 months from the date of the win or loss and calculated on a constant currency basis. 3 A 12-month average of capital invested, calculated as net assets before tax balances, cash and borrowings but after adjustment for accumulated pre-tax Significant Items, actuarial gains and losses and net equity adjustments for equity-settled share-based payments. FINANCIAL POSITION CAPITAL STRUCTURE Brambles manages its capital structure to maintain a solid investment grade credit rating. During the financial year ended 30 June 2013, Brambles held investment-grade credit ratings of BBB+ from Standard & Poor s and Baa1 from Moody s Investors Service. In determining its capital structure, Brambles considers the robustness of future cash flows, potential funding requirements for growth opportunities and acquisitions, the cost of capital, and ease of access to funding sources. Initiatives available to Brambles to achieve its desired capital structure include adjusting the amount of dividends paid to shareholders, returning capital to shareholders, buying back share capital, issuing new shares, selling assets to reduce debt, and varying the maturity profile of borrowings. TREASURY POLICIES Brambles treasury function is responsible for the management of certain financial risks within Brambles. Key treasury activities include liquidity management, interest rate and foreign exchange risk management, and securing access to short and long-term sources of debt finance at competitive rates. These activities are conducted on a centralised basis in accordance with Board policies and guidelines, through standard operating procedures and delegated authorities. These policies provide the framework for treasury to arrange and implement lines of credit from financiers, select and deal in approved financial derivatives for hedging purposes, and generally execute Brambles financing strategy. Brambles policies with respect to interest and exchange rate risks and appropriate hedging instruments are described below. Further information is contained in Note 30 on pages 99 to 108 of this report, including a sensitivity analysis (pages 102 and 104) with respect to these financial instruments. The Group uses standard financial derivatives to manage financial exposures in the normal course of business. It does not use derivatives for speculative purposes and only transacts derivatives with relationship banks. Individual credit limits are assigned to those relationship banks, thereby limiting exposure to credit-related losses in the event of non-performance by any counterparty. FUNDING & LIQUIDITY Brambles funded its operations during the 2013 financial year through equity issuance, retained cash flow and borrowings. The Group generally sources debt funding from relationship banks and debt capital market investors on a medium-to-long-term basis. The only major equity issuance of the year occurred in July 2012, when Brambles received A$115.3 million before costs representing the retail portion of the fully underwritten 1-for-20 pro rata accelerated renounceable entitlement offer made in June Brambles received the institutional portion (A$332.8 million before costs) of the entitlement offer in the prior year. The purpose of the equity raising was to replace funds Brambles would have raised through the underwritten dividend reinvestment plan for the 2011 final and 2012 interim dividends. These plans formed part of the equity component of the original IFCO acquisition funding plan but were cancelled in August 2011 in the expectation of a sale of Recall, which subsequently did not proceed. The net proceeds of the offer were used to retire bank borrowings drawn under various revolving credit facilities. There were no new debt capital market issuances during the Year. Bank borrowing facilities were maintained and portions renewed throughout the year. These facilities are generally structured on multi-currency, revolving bases and currently have maturities ranging to November Borrowings under the facilities are floating-rate, unsecured obligations with covenants and undertakings typical for these types of arrangements. Brambles Annual Report Page 5

6 OPERATIONAL & FINANCIAL REVIEW CONTINUED Table 1 below shows the maturity profile of the Group s committed borrowing facilities and outstanding bonds, including the percentage due in each 12-month maturity bucket. Table 1: Maturity Profile of Committed Borrowing Facilities & Outstanding Bonds US$B % = percentage of total committed credit facilities Brambles liquidity policy requires, among other things, that no more than 25% of total committed credit facilities mature in any rolling 12-month period. At 30 June 2013, the Group was in compliance with the policy. Table 2: Net Debt & Key Ratios US$M June 2013 June 2012 Change Current debt Non-current debt 2, ,777.7 (91.3) Gross debt 2, ,864.1 (20.8) Less cash (128.9) (174.2) 45.3 Net debt 2, , Key ratios 1% 22% 24% < 1 yr 1-2 yrs 2-3 yrs 3-4 yrs 4-5 yrs > 5 yrs Net debt to EBITDA 1.68x 1.72x - EBITDA interest cover 14.6x 10.3x % Bonds/notes Bank borrowings Undrawn bank facilities Brambles financial policy is to target a net debt to EBITDA ratio of less than 1.75 times. Key financial ratios continue to reflect the Group s strong balance sheet position and remain well within the financial covenants included in Brambles major financing agreements, with net debt to EBITDA at 1.68 times (2012: 1.72 times) and EBITDA interest cover at 14.6 times (2012: 10.3 times). Net debt was US$2,714.4 million at 30 June 2013, up US$24.5 million from 30 June 2012, reflecting the net funding impact of the Pallecon acquisition and the retail rights proceeds received in the period. At 30 June 2013, Brambles had committed credit facilities including bonds and notes totalling US$3,958.1 million. Undrawn committed borrowing capacity totalled US$1,224.2 million. The average term to maturity of Brambles committed credit facilities at 30 June 2013 was 3.6 years (2012: 3.7 years). Brambles enters into operating 24% 14% leases for office and operational locations and certain plant and equipment to achieve flexibility in the use of certain assets. The rental periods vary according to business requirements. DIVIDEND POLICY & PAYMENT Brambles has a progressive dividend policy under which the Group maintains at least the level of dividends per share it pays, in Australian cents, subject to the Group s financial performance and cash requirements. The Board has declared a final dividend for 2013 of 13.5 Australian cents per share, up 0.5 Australian cents compared with the previous final dividend and payable on 10 October 2013 to shareholders on the Brambles register at 5pm on 13 September The final dividend is 30% franked. The ex-dividend date is 9 September Total dividends for the Year are 27.0 Australian cents per share, up 1.0 Australian cent. Brambles paid an interim dividend of 13.5 Australian cents per share on 11 April 2013, franked at 30%. The unfranked component of the final dividend is conduit foreign income. Consequently, shareholders not resident in Australia will not pay Australian dividend withholding tax on this dividend. The Dividend Reinvestment Plan remains suspended. INTEREST RATE RISK Brambles interest rate risk policy is designed to reduce volatility in funding costs through prudent selection of hedging instruments. This policy includes maintaining a mix of fixed and floating-rate instruments within a target band, over a certain time horizon, using interest rate derivatives where appropriate. The policy requires the level of fixed-rate debt to be within 40% to 70% of total forecast debt arising over the immediate 12-month period, decreasing to a range of: 20% to 60% for debt maturities of one to two years; 10% to 50% for debt maturities of two to three years; and 0% to 50% for debt maturities extending beyond three years. At 30 June 2013, Brambles had 50% of its weighted average interestbearing debt over the next 12 months at fixed interest rates (2012: 51%). Beyond 12 months, the proportion of fixed rate debt in the range of one to two years was 47% (2012: 47%), 48% for two to three years (2012: 45%) and 46% for three to four years (2012: 39%) with a decreasing proportion for each year thereafter. The weighted average maturity period was 4.4 years (2012: 5.1 years). The fair value of all interest rate swap instruments was US$19.0 million net gain (2012: US$23.5 million net gain). FOREIGN EXCHANGE RISK Brambles manages its foreign exchange exposures from the perspective of reducing volatility in the value of foreign currency cash flows and assets. Exposures generally arise in either: - Transaction exposures affecting the value of transactions translated back to the functional currency of the subsidiary; and - Translation exposures affecting the value of assets and liabilities of overseas subsidiaries when translated into US dollars. Under Brambles foreign exchange policy, foreign exchange hedging is mainly confined to the hedging of transaction exposures where such exposures exceed a certain threshold, and as soon as a defined exposure arises. Within Brambles, exposures may arise with external parties or, alternatively, by way of cross-border intercompany transactions. Forward foreign exchange contracts are primarily used for these purposes. Given the nature of the Group s operations, these exposures are not significant. Brambles generally mitigates translation exposures by raising debt in currencies where there are matching assets. During the Year, Brambles maintained net investment hedge borrowings in euro of million, broadly to match its euro-denominated assets. At the end of the Year, the fair value of foreign exchange instruments was US$8.3 million net loss (2012: US$1.8 million net loss). Brambles Annual Report Page 6

7 OPERATIONAL & FINANCIAL REVIEW CONTINUED SAFETY & SUSTAINABILITY ZERO HARM During the Year, Brambles reviewed and launched an updated version of its Zero Harm Charter (see Sustainability on pages 5 to 6). The Charter states that everyone has the right to be safe at work and be able to return home to their family and friends as healthy as when they started the day. Each and every person is expected to think first of Zero Harm. Brambles seeks to apply best practice in occupational health, safety and environment for employees, contractors, customers and the communities in which it operates. Brambles Injury Frequency Rate (BIFR) is the primary measure of safety performance across the Group. BIFR is recorded at a rate per million hours worked and provides a comprehensive view of employee safety. It includes: - Work-related fatalities; - Loss of a full work shift due to injury; - Modified duties for a full work shift following an injury; and - Incidents that require external medical treatment. The Year was transitional for Brambles reporting on safety. For the first time, data for all businesses acquired in FY12 were incorporated into BIFR. Acquisitions made in FY13 were not included but will be incorporated in FY14. In addition, the Group introduced a greater emphasis on reporting near misses (i.e. incidents in which a reportable injury is narrowly avoided) as a positive indicator to identify and eliminate risks before accidents occur. All businesses increased their focus on improving segregation of pedestrians from vehicles and machinery, helping drive a reduction in severity rates. The FY13 BIFR result of 14.9, a 31% improvement on the previous year, means the Group has achieved its objective of a 25% reduction on FY12 levels. Brambles will continue to target year-on-year improvements, after taking into account the impact of any acquisitions. Table 3: BIFR Pallets - Americas FY13 FY12 Change Reasons for change % Machine incident reductions and repair process improvements Pallets - EMEA (12)% Increased focus on safety management and incident investigation in MEA Pallets - Asia- Pacific % Improved ownership of safety at the site level Pallets % RPCs % Focus on ergonomic improvements and washing machine safety Containers % Improvements in CHEP Aerospace Solutions Recall % Calibration of incident classification throughout the world Brambles % 4 For the purposes of safety reporting the Pallets segment includes the CHEP RPCs and Containers operations in Asia-Pacific and South Africa. 5 For the purposes of safety reporting, the Containers segment includes the CHEP Automotive & Industrial Solutions operations in Europe and the Americas, CAPS, CHEP Aerospace Solutions and the CHEP Catalyst & Chemical Containers business. 6 Brambles has adjusted its FY12 BIFR to incorporate acquired operations and establish a base rate for comparison. The previously published FY12 BIFR of 9.3 has been replaced with a new base rate of 21.5 that covers all businesses except those acquired during FY13. A detailed report on Brambles safety performance will be available in the 2013 Sustainability Review, which will be published on Brambles website during September Brambles reports with great sadness that two fatalities occurred during the Year in relation to its operations: - A temporary contractor was fatally injured while working for the IFCO PMS business in Kansas City, USA, in May The contractor was driving a PMS vehicle and was involved in a singlevehicle accident, which is under investigation by the Kansas State Highway Patrol. - A third-party service provider of tree-felling services at CHEP s Springfield timber farm in South Africa was fatally injured in January SUSTAINABILITY Brambles defines Sustainability as the strategies and activities the Group has adopted in relation to its employees, the environment, ethics and the community. This approach is consistent with Brambles strategy and shared values and is designed to enhance, among other things: - Efficiency and productivity in Brambles use of finite resources; - The value Brambles creates for customers and shareholders; - Employee engagement; - Clarity of communication with customers and other stakeholders; and - Brambles ability to grow over the long term without causing harm to the environment or the health and safety of its employees. Brambles believes the fundamental principles on which its business is built are inherently sustainable. The Group is committed to being the global leader in responsible and sustainable pooling solutions in the supply chains it serves. It is focused on building a long-term, sustainable business that serves its customers, employees and shareholders and the communities in which they live. Brambles is applying best-practice standards throughout its operations and logistics, and is continuously vigilant in reducing asset losses, cycle times and damage to generate a more sustainable use of physical and financial resources. Fundamental to these efficiency efforts are the principles of recover, reuse, reduce and recycle. The repeated use of higher quality assets compared with alternative disposable or limited-use platforms reduces material and energy requirements. Brambles retains ownership of its assets at all times, enabling the company to control end-of-life management and improve continuously its recovery, reuse, reduction and recycling efforts. Strategy Since 2009, Brambles Sustainability Committee has been responsible for the strategies and activities adopted by Brambles with regard to the environment, its employees, ethics and the community, consistent with the Group s Shared Values. In 2010, Brambles launched its sustainability strategy and outlined its strategic objectives and initiatives to Brambles set a number of targets to measure efforts to improve continuously, demonstrate the inherent sustainability value in the business model for Brambles and its stakeholders and deliver more efficient, safer and environmentally sustainable supply chains. The strategy and targets are grouped into four areas of focus: Customer, Environment, People and Community. A table containing the targets and details on progress to date are included in Table 4. A full update on the targets will be provided in the Sustainability Review to be published on Brambles website in September Brambles Annual Report Page 7

8 OPERATIONAL & FINANCIAL REVIEW CONTINUED In support of its areas of focus, Brambles is aware that in its approach it must have the right risk and governance foundations and appropriate structures in place to manage its outputs and outcomes responsibly. Brambles lists its commitments in this respect under Governance in the Sustainability section of its website. Key Topics Brambles has established a process to determine key sustainability topics that will impact the Group and are therefore of most importance to measure, manage and communicate. Brambles conducted its first formal analysis of sustainability topics it considers important to its stakeholders in FY11. A third-party provider conducted the analysis using AccountAbility Principles Standards AA1000 five-part test as a guide. For FY13, an online questionnaire was distributed to key management personnel responsible for engagement with customers, employees, shareholders and other stakeholders. As a result of recent developments in regulatory reporting frameworks, the acquisitions of new businesses and the planned demerger of Recall, Brambles will conduct a new key sustainability topic analysis process and a complete review of its Sustainability targets in FY14. Brambles will communicate the outcomes of this process in its 2014 Annual Report and Sustainability Review. Key Activities during the Year Brambles undertook the following key Sustainability activities during the Year: - Reviewed and updated the Zero Harm Charter, which included adding human rights to the existing safety and environmental commitments to recognise clearly everyone s right to life, family life, health and development; - Enhanced the visibility of its lumber supply chains and updated its lumber purchasing processes, including development of a global sustainable sourcing standard to incorporate biodiversity and human rights, in line with continuing efforts to improve the supply chain; - Incorporated its Social Media Policy in its Code of Conduct; - Commenced the roll-out of the global Occupational Health, Safety & Environment reporting system (icare). The safety module is used by all businesses. icare s energy waste and reporting module is currently used by CHEP Pallets and the RPCs segment; - IFCO RPCs operations reported energy and emissions data for the first time; - Signed the UN Global Compact, demonstrating Brambles support for responsible business practices; - Became a Steering Committee member of the World Economic Forum s food waste project; and - Developed a global supplier policy to be rolled out to all businesses in FY14. Brambles is preparing the Sustainability Review with reference to the Global Reporting Initiative (GRI) G3.1 principles for delivering content and quality, and the 10 principles of the UN Global Compact. Brambles has engaged KPMG to provide limited assurance on the Group s adherence to the GRI principles and on selected metrics. Brambles will publish details of the scope of this engagement and KPMG s opinion with the full Sustainability Review. Table 4: Progress against Sustainability Targets Measure Target Progress Customer Customer loyalty Customer engagement Environment Lumber sourcing Greenhouse gas emissions Introduction of Net Promoter Score in every country and year-on-year improvements Increased participation in industry forums and customer advocacy panels Chain of custody certification by % reduction on 2010 levels by 2015 Lumber waste Zero lumber waste to landfill by 2015 Solid waste Year-on-year recycling improvements Water management People Employee diversity Target to be set in % female representation on Board and Executive Leadership Team by 2015 and within all management positions by 2018 Safety 25% reduction in BIFR on 2012 levels by 2017 Employee engagement survey Employee engagement score Education, training and development Community Brambles Employee Survey participation at minimum of 90% by 2015 Brambles Employee Survey target of 73% by % increase in education, training and development days on 2012 levels by 2015 Supplier policy Develop and introduce global policy by end of 2013 Volunteer time for employees At least one volunteer hour per employee during working hours by 2015 Give as you earn policies Introduced in all businesses where allowed by legislation by 2015 Target achieved Progressing and on-track Brambles Annual Report Page 8

9 OPERATIONAL & FINANCIAL REVIEW CONTINUED SIGNIFICANT RISKS & UNCERTAINTIES Brambles has adopted a risk management framework that sets out the processes for the identification and management of risk throughout the Group. Full details of the objectives of the framework and the strategies and processes applied to manage these risks are described in Section 7 of the Corporate Governance Statement on pages 26 to 28. The risk management framework provides for a biannual production of a Group risk matrix, which sets out the top 10 net risks facing the Group and the steps being taken to mitigate those risks. The top 10 net risks are rated on the basis of their potential impact on the Group as a whole after taking into account current mitigating actions. Listed below are the top 10 net risks on the risk matrix for the Year. Investors should be aware that there are other risks associated with an investment in Brambles. - Business model changing supply chain dynamics and customer needs could render Brambles existing service offerings and business models out of date. Current market issues that, in combination or separately, could support competitive service offerings include: differing segmental needs, attributes of wood versus alternative materials, use of track-and-trace technology, increasing fuel costs, changes in retailer behaviour and the embedded cost of asset losses in the current model. These issues could, over time, have an impact on revenue, cost base, economies of scale and the value of Brambles existing assets. - Competition and retention of major customers Brambles operates in a competitive environment. Many of the markets in which Brambles operates are served by numerous competitors and are subject to the threat of new entrants. In addition, the concentration of distributors in certain areas could lead to shifts in market structure, bargaining position and intensity of competition. The above risks could have an impact on market penetration, revenue, profitability, economies of scale and the value of existing assets. - Strategy and execution Brambles is subject to the risk of not having effective strategies in place to guide the Group s performance and to drive sales and profit growth, enable innovation, safety improvements and improve customer and employee satisfaction. Further, it is subject to the risk of not being able to effectively execute against agreed strategies resulting in loss of market and investor confidence and reduced share performance. - Innovation Brambles is subject to the risk of not being able to optimise innovations in its services, products, processes and commercial solutions, including capturing the full value of any innovations that support its growth opportunities. This could have an impact on revenue, profitability, economies of scale and the value of existing assets. - Equipment losses Brambles is subject to the risk of a lack of control of Pooling Solutions equipment. This could impact financial performance and lead to a reduction in customer satisfaction. - Equipment quality satisfaction of Brambles customers may fluctuate with the customers perceived views of equipment quality which, in turn, is influenced by the effectiveness of the quality standards that Brambles employs in its equipment pools. Brambles is subject to the risk that it may not optimise these standards, thereby adversely affecting customer satisfaction with its service offering and/or the operating and capital costs of the equipment pools. - Mergers and Acquisitions Brambles is subject to the risk of failing to successfully execute acquisitions and disposals, as well as the risk of failing to successfully integrate acquisitions. If the integration of newly acquired businesses is not effective, this could result in the failure to realise the anticipated benefits and synergies. - People capability Brambles is subject to the risk of not attracting, developing and retaining high-performing individuals. Furthermore, succession planning may not be managed effectively, so that talented individuals are able to be developed and promoted within the Group, rather than sourced externally. This could result in Brambles not having sufficient quality and quantity of people to meet its growth and business objectives. - Systems and technology Brambles relies on the continuing operation of its information technology and communications systems, including those in CHEP s global data centre. Interruption, compromise or failure of these systems could impair Brambles ability to provide its services effectively. This could damage its reputation and, in turn, have an adverse effect on its ability to attract and retain customers. - Zero Harm Brambles is subject to inherent operational risks, including industrial hazards, road traffic or transportation accidents that could potentially result in serious injury or fatality of employees, contractors or members of the public. There is also a risk of prosecution of its Officers and Directors due to wilful or negligent breaches of safety regulations. Brambles Annual Report Page 9

10 OPERATIONAL & FINANCIAL REVIEW CONTINUED FINANCIAL REVIEW GROUP OVERVIEW SALES REVENUE US$M FY13 FY12 Actual FX Change Constant FX Pallets Americas 2, , % 8% Pallets EMEA 1, , % 5% Pallets - Asia-Pacific % 5% Total Pallets 3, , % 7% RPCs % 10% Containers % 20% Total Pooling Solutions 5, , % 8% Recall (4)% (3)% Total Brambles 5, , % 6% Brambles sales revenue in the 12 months ended 30 June 2013 was US$5,889.9 million, up 5% (6% at constant currency 7 ) compared with the prior corresponding period. Pooling Solutions (Pallets, Reusable Plastic Crates (RPCs) and Containers) contributed sales revenue of US$5,082.9 million, up 6% (8% at constant currency). The main contributor was Pallets Americas, in which business wins remained strong, combined with continued expansion of RPCs and Containers and a resilient sales result from Pallets EMEA. Recall contributed sales revenue of US$807.0 million, down 4% (3% at constant currency), reflecting reduced levels of transactional project activity. OPERATING PROFIT US$M FY13 FY12 Actual FX Change Constant FX Pallets Americas % 20% Pallets EMEA % Pallets Asia-Pacific % 3% Total Pallets % 12% RPCs % 30% Containers (15)% (12%) Total Pooling Solutions % 13% Recall (20)% (18)% Brambles HQ (43.4) (54.4) 20% 19% Operating profit was US$1,011.2 million, up 8% (10% at constant currency). Pooling Solutions contributed operating profit of US$926.4 million, up 11% (13% at constant currency), reflecting sales growth, operating efficiency improvements and reduced Significant Items 8, all of which more than offset the impact of an increase in business development costs of US$26 million, and increases in direct costs, primarily related to the cost of lumber purchased in Pallets Americas. In Recall, operating profit was down 20% (18% at constant currency), reflecting a reduction in higher margin sales from project activities in both the Document Management Solutions and Secure Destruction Services business lines and an increase of US$10 million in costs, primarily associated with business development. PROFIT AFTER TAX US$M Operating profit from continuing operations FY13 FY12 Actual FX Change Constant FX 1, % 10% Net finance costs (110.9) (152.0) 27% 26% Tax expense (260.4) (212.3) (23)% (23)% Profit from discontinued operations (50)% (57)% Profit after tax % 14% Weighted average number of shares (M) 1, , % 5% EPS (US cents) % 9% Profit after tax was US$640.6 million, up 11% (14% at constant currency), reflecting the higher operating profit, lower net finance costs and a higher tax expense. Net finance costs were US$110.9 million, down 27% (26% at constant currency). The decreased costs were mainly attributable to the net impact of lower average borrowings (reflecting the June 2012 equity raising and higher free cash flow in FY13, which more than offset the funding of the Pallecon acquisition) and lower average interest rates on bank debt. Tax expense was US$260.4 million. The effective tax rate on operating profit (after net finance costs) was 29%, compared with 27% the prior year. The increase was primarily a result of higher profits in the USA and higher non-deductible costs. Basic earnings per share was 41.2 US cents, up 6% (9% at constant currency), reflecting the increase in profit after tax, offset by an increase in the weighted average number of shares on issue as a result of the June 2012 equity raising. Total continuing operations 1, % 10% 7 Calculated by translating reported period results into US dollars at the actual monthly exchange rates applicable in the prior corresponding period. 8 Brambles defines Significant Items as items of income or expense that are (either individually or in aggregate) material to Brambles or to the relevant business segment and: either outside the ordinary course of business; or part of the ordinary activities of the business but unusual in size and nature. Brambles Annual Report Page 10

11 OPERATIONAL & FINANCIAL REVIEW CONTINUED UNDERLYING PROFIT 9 US$M FY13 FY12 Actual FX Change Constant FX Pallets Americas % 15% Pallets EMEA % 7% Pallets Asia-Pacific % 4% Total Pallets % 11% RPCs % 13% Containers (13)% (10)% Total Pooling Solutions % 11% Recall (17)% (16)% Brambles HQ (34.4) (37.8) 9% 7% Total Brambles 1, , % 7% Underlying Profit, which excludes Significant Items, was US$1,057.2 million, up 5% (7% at constant currency). In Pooling Solutions, Underlying Profit was up 8% (11% at constant currency). In Recall, Underlying Profit was US$144.2 million, down 17% (16% at constant currency). These results reflected the same trends as for operating profit. Reconciliation of Underlying Profit to Operating Profit US$M FY13 FY12 Underlying Profit 1, ,009.7 Significant Items: Acquisition-related costs (4.6) (2.8) Restructuring & integration costs (22.0) (53.2) Recall transaction costs (4.1) (21.2) Impairment of software development costs (15.3) - Pension costs - (5.8) Foreign exchange gain on capital repatriation Total Significant Items (46.0) (70.5) Operating profit 1, Significant Items were US$(46.0) million, down from US$(70.5) million, primarily driven by a reduction in restructuring and integration costs as well as transaction costs associated with the cancelled Recall divestment process. The other major Significant Item in the period was the impairment of software development costs previously capitalised in Recall. Higher restructuring and integration costs in the prior corresponding period were associated with the integration of IFCO, the move of the CHEP head office in North America and restructuring in Recall. 9 Brambles defines Underlying Profit as profit from continuing operations before finance costs, tax and Significant Items. RETURN ON CAPITAL METRICS Return on Capital Invested 10 US$M FY13 FY12 Change Pallets Americas 19.2% 17.3% 1.9pp Pallets EMEA 22.8% 21.5% 1.3pp Pallets - Asia-Pacific 18.8% 19.6% (0.8)pp Total Pallets 20.4% 18.9% 1.5pp RPCs 9.5% 9.1% 0.4pp Containers 8.3% 14.1% (5.8)pp Total Pooling Solutions 16.8% 16.2% 0.6pp Recall 13.2% 15.8% (2.6)pp Total Brambles 15.9% 15.7% 0.2pp Improvements in Brambles key return on capital metrics primarily reflected improvements in the Pallets segment, where there was strong profit growth in the Americas region and reduced Average Capital Invested in the EMEA region. Return on capital invested across the Group was 15.9%, up 0.2 percentage points, while Brambles Value Added 11 (BVA) was US$269.9 million, up US$21.3 million. In Pooling Solutions, return on capital invested was 16.8%, up 0.6 percentage points, while BVA increased US$48.7 million to US$283.3 million. Ongoing operating investment in developing the Containers segment led to the decline in return on capital invested and BVA. In Recall, return on capital invested remained in excess of the cost of capital at 13.2% and BVA remained positive at US$13.3 million, reflecting lower Underlying Profit. Brambles Value Added US$M, fixed June 2012 FX FY13 FY12 Change Pallets Americas Pallets - EMEA Pallets - Asia-Pacific Total Pallets RPCs (36.1) (38.3) 2.2 Containers (12.3) 4.3 (16.6) Total Pooling Solutions Recall (27.8) Brambles HQ (26.7) (27.1) 0.4 Total Brambles Return on capital invested is Underlying Profit divided by Average Capital Invested (which Brambles defines as a 12-month average of capital invested, calculated as net assets before tax balances, cash and borrowings but after adjustment for accumulated pre-tax Significant Items, actuarial gains and losses and net equity adjustments for equity-settled share-based payments). 11 Brambles Value Added (BVA) is the value generated over and above the cost of capital used to generate that value. It is calculated using fixed 30 June 2012 exchange rates as: Underlying Profit; plus Significant Items that are part of the ordinary activities of the business; less Average Capital Invested, adjusted for accumulated pre-tax Significant Items that are part of the ordinary course of business, multiplied by 12%. Brambles Annual Report Page 11

12 OPERATIONAL & FINANCIAL REVIEW CONTINUED CAPITAL EXPENDITURE ON PROPERTY, PLANT & EQUIPMENT (ACCRUALS BASIS) US$M FY13 FY12 Change Pallets Americas Pallets EMEA Pallets - Asia-Pacific (12.4) Total Pallets RPCs (31.2) Containers (16.2) Total Pooling Solutions (12.4) Recall Brambles HQ (0.2) Total Brambles Capital expenditure on property, plant and equipment (accruals basis) was US$927.7 million, up US$6.6 million. In Pooling Solutions, the total was US$864.5 million, down US$12.4 million. This primarily reflected continued disciplined investment in pallets, crates and containers to support growth throughout Pooling Solutions as well as the benefits of asset efficiency programs in the Pallets segment. Maintenance capital expenditure in Pallets was broadly in line with FY12. Growth capital expenditure in RPCs, Containers and emerging markets Pallets was US$190 million, taking total capital expenditure in these areas for FY12 and FY13 to US$430 million. This was lower than the US$550 million foreseen when the program was initially announced in August 2011, primarily reflecting slower growth in RPCs and lower expenditure in Containers as a result of the slower than anticipated rate of customer conversion. In Recall, capital expenditure was US$62.0 million, up US$19.2 million, primarily reflecting increased investment to support growth programs compared with levels in FY12 that were lower than the historical average. CASH FLOW Cash Flow from Operations 12 increased to US$859.0 million, up US$267.8 million. In addition to the increased profit and reduced capital expenditure (on a cash basis), the main contributors to the improved cash flow were a reduction in provisions and other items of US$69.7 million (driven by the non-recurrence of FY12 litigation and software spend, as well as lower bonus payments in FY13) and improved working capital management. Free cash flow after dividends was US$83.1 million, up US$301.3 million, reflecting the higher operating cash flow and reduced interest costs. FINANCIAL REVIEW SEGMENTAL ANALYSIS PALLETS Sales Sales revenue in the Pallets segment was US$3,944.4 million, up 5% (7% at constant currency), driven primarily by strong growth in the Americas. Net new business wins 13 in the Pallets segment were US$131 million, contributing constant currency sales revenue growth of 4%. Sales revenue from the emerging markets regions (Asia, Central & Eastern Europe, Latin America and Middle East & Africa) of the Pallets segment was US$523.7 million, up 13 % (19% at constant currency), in line with the company s forecast of at least 15% constant currency growth. Profit Operating profit in the Pallets segment was US$760.0 million, up 10% (12% at constant currency). The operating profit margin was 19%, up 1 percentage point. During the year, the Pallets segment delivered an additional US$11 million from IFCO integration synergies and an additional US$10 million from the global Pallets efficiencies program. These efficiency improvements, combined with pricing and sales mix benefits, were more than sufficient to offset other cost impacts throughout the Pallets segment. Underlying Profit was US$780.3 million, up 9% (11% at constant currency). The Underlying Profit margin was 20%, up 1 percentage point. US$M FY13 FY12 Change Underlying Profit 1, , Depreciation and amortisation EBITDA 1, , Capital expenditure (905.1) (949.4) 44.3 Proceeds from sale of PP&E Working capital movement (24.8) (107.9) 83.1 Irrecoverable pooling equipment provision Provisions/other (37.3) (107.0) 69.7 Cash Flow from Operations Significant Items/discontinued operations (43.6) (38.2) (5.4) Financing costs and tax (306.8) (373.5) 66.7 Free cash flow Dividends paid (425.5) (397.7) (27.8) Free cash flow after dividends 83.1 (218.2) Brambles defines Cash Flow from Operations as cash flow generated after net capital expenditure but excluding Significant Items that are outside the ordinary course of business. 13 Net new business wins are the change in sales revenue in the reporting period resulting from business won or lost in that period and the previous financial year. The revenue impact of net new business wins is included across reporting periods for a total of 12 months from the date of the win or loss and calculated on a constant currency basis. Brambles Annual Report Page 12

13 OPERATIONAL & FINANCIAL REVIEW CONTINUED PALLETS AMERICAS PALLETS EMEA US$M Change US$M Change FY13 FY12 Actual FX Constant FX FY13 FY12 Actual FX Constant FX Sales revenue 2, , % 8% Operating profit % 20% Margin 19% 17% 2pp Significant Items: Restructuring Underlying Profit % 15% Margin 19% 18% 1pp Sales Sales revenue in Pallets Americas was US$2,205.8 million, up 8%, as a result of new business growth led by strong growth in CHEP USA. Net new business wins throughout Pallets Americas were US$77 million, contributing 4% constant currency sales revenue growth. CHEP USA s sales revenue was US$1,248.5 million, up 7%, reflecting the rollover impact of new business won during FY12, further new business wins in FY13, the benefits of targeted pricing initiatives and modest increases in like-for-like sales volumes. CHEP Canada s sales revenue was US$278.2 million, up 8% (9% at constant currency), reflecting a full year s contribution from the Paramount Pallet acquisition in November 2011, net new business wins in the CHEP pooled pallets business and like-for-like sales volume growth. CHEP Latin America s sales revenue was US$256.8 million, up 11% (14% at constant currency), reflecting continued like-for-like sales volume growth with key accounts throughout the region as well as net new business wins, in particular in Mexico and Brazil, and modest pricing increases. IFCO Pallet Management Services (PMS) sales revenue was US$400.7 million, up 9%, reflecting improvements in pricing like-forlike sales volume growth. LeanLogistics sales revenue was US$21.6 million, up 14%, primarily reflecting new business growth in the USA and Europe. Profit Operating profit was US$414.6 million, up 20%. The operating profit margin was up 2 percentage points at 19%. Margin improvement reflected positive sales mix, incremental IFCO PMS integration synergies, predominantly from plant network optimisation, and gains from the global Pallets efficiencies program. These factors more than offset increased direct costs (primarily because of higher lumber costs and investment in asset recovery) and increased business development costs. Underlying Profit, which excludes Significant Items of US$4.5 million on restructuring, was US$419.1 million, up 15%. The Underlying Profit margin was 19%, up 1 percentage point. Sales revenue 1, , % 5% Operating profit % Margin 20% 20% - Significant Items: Restructuring 14.2 (0.3) Pension costs Underlying Profit % 7% Margin 21% 21% - Sales Sales revenue in Pallets EMEA was US$1,346.8 million, up 2% (5% at constant currency), as the benefits of net new business wins in FY12 and FY13 in Europe, modest pricing growth and continued expansion in emerging countries and regions more than offset flat like-for-like sales growth in Europe as a result of ongoing subdued economic conditions. Net new business wins were US$47 million, contributing constant currency sales revenue growth of 4%. CHEP Western Europe sales revenue was US$1,131.5 million, down 1% (up 2% in constant currency). This reflected expansion in the under-penetrated Mid Europe region, in particular Germany and Italy, where retailer acceptance of the CHEP pallets solution is increasing, and resilience in the UK & Ireland. This offset a flat result in France and a further decline reflecting economic conditions in Iberia. Within CHEP Western Europe: - Mid Europe sales revenue was US$365.8 million, up 2% (5% at constant currency); - UK & Ireland sales revenue was US$359.7 million, up 3% (4% at constant currency); - Iberia sales revenue was US$242.1 million, down 6% (3% at constant currency; and - France sales revenue was US$163.9 million, down 3% (flat at constant currency). CHEP Central & Eastern Europe sales revenue was US$78.4 million, up 44% (47% at constant currency), reflecting continued expansion in the region, mostly in Turkey and Poland, and the entry in 2012 into seven new countries within the region. CHEP Middle East & Africa sales revenue was US$136.9 million, up 1% (14% at constant currency), reflecting like-for-like sales growth and pricing in South Africa and expansion in the Middle East. Profit Operating profit was broadly unchanged at US$268.2 million (up 4% at constant currency). The operating profit margin was flat at 20%. Price and sales mix improvements, as well as benefits from the global Pallets efficiencies program, more than offset the impact of continued investment in expanding the business in Central & Eastern Europe and other costs. Underlying Profit, which excludes US$14.2 million of Significant Items on restructuring, was US$282.4 million, up 3% (7% at constant currency). The Underlying Profit margin was maintained at 21%. Brambles Annual Report Page 13

14 OPERATIONAL & FINANCIAL REVIEW CONTINUED PALLETS ASIA-PACIFIC RPCs US$M Change US$M Change FY13 FY12 Actual FX Constant FX FY13 FY12 Actual FX Constant FX Sales revenue % 5% Operating profit % 3% Margin 20% 20% - Significant Items: Restructuring Underlying Profit % 4% Margin 20% 20% - Sales Sales revenue in Pallets Asia-Pacific was US$391.8 million, up 4% (5% at constant currency), reflecting continued expansion in Asia and subdued economic conditions in Australia. Net new business wins were US$8 million, contributing constant currency sales revenue growth of 2%. Australia & New Zealand sales revenue was US$340.2 million, up 2%, reflecting modest new business growth and pricing increases in Australia. Asia sales revenue was US$51.6 million, up 25%, primarily reflecting new business wins in China and India and improved like-for-like sales volumes with existing customers in Malaysia and Thailand. Profit Operating profit was US$77.2 million, up 2% (3% at constant currency). The operating profit margin was flat at 20%. Sales growth more than offset the impact of reduced compensations (reflecting a reduction in the level of irrecoverable pallets), an increase in repairs in Australia and business development costs in Asia. Underlying Profit, which excludes Significant Items of US$1.6 million on restructuring, was US$78.8 million, up 3% (4% at constant currency). The Underlying Profit margin was flat at 20%. Sales revenue % 10% Operating profit % 30% Margin 17% 14% 3pp Significant Items: IFCO integration Restructuring Underlying Profit % 13% Margin 17% 17% - Sales Sales revenue in RPCs was US$812.8 million, up 7% (10% at constant currency), reflecting growth in all regions from continued displacement of disposable cardboard boxes, expansion into additional produce items with existing retailers, the addition of new retailers to the network and the launch of new products. The sales growth was below the target of 15% set in August 2012 as a result of slower than anticipated conversions of new customers in North America although growth remained strong in this region. - Europe sales revenue was US$510.9 million, up 4% (8% at constant currency), primarily driven by expansion with existing retailers throughout Western Europe; - North America sales revenue was US$162.7 million, up 18%, reflecting expansion in the USA and Canada, mostly with existing retailers; - South America sales revenue was US$21.9 million, down 9% (up 3% at constant currency), reflecting growth in Argentina; and - Australia, New Zealand and South Africa sales revenue was US$117.3 million, up 9% (12% at constant currency), mostly reflecting new business growth from expansion with new and existing retailers in Australia. Profit Operating profit was US$138.4 million, up 27% (30% at constant currency). The operating profit margin was 17%, up 3 percentage points, reflecting integration costs in the prior year. Underlying Profit, which excludes Significant Items of US$0.3 million on restructuring, was U$138.7 million, up 11% (13% at constant currency). The Underlying Profit margin was 17%, the same as the prior year. Brambles Annual Report Page 14

15 OPERATIONAL & FINANCIAL REVIEW CONTINUED CONTAINERS RECALL US$M Change US$M Change FY13 FY12 Actual FX Constant FX FY13 FY12 Actual FX Constant FX Sales revenue % 20% Operating profit (15)% (12)% Margin 9% 12% (3)pp Significant Items: Restructuring & integration Underlying Profit (13)% (10)% Margin 9% 12% (3)pp Sales Sales revenue in the Containers segment was US$325.7 million, up 18% (20% at constant currency), primarily reflecting the US$34.1 million contribution of the Pallecon operations acquired in December 2012 in addition to new business wins in pre-existing businesses. Growth was partially offset by downward pressure in the automotive sector, reflecting industry softness in Australia and, to a lesser extent, Europe. Sales revenue in the new Containers operations in the Automotive and intermediate bulk containers (IBC) sectors in the USA and the global Aerospace Solutions business was US$81.5 million, up 42% (41% at constant currency), behind management forecasts that sales revenue from these businesses would double. This primarily reflected the slower than anticipated rate of conversion of new customers in the automotive industry in the USA. By business line, Containers sales revenue was as follows: - Automotive sales revenue was US$150.2 million, down 3% (flat at constant currency), as growth in Asia and North America and a relatively resilient result in EMEA were offset by the impact of severely deteriorating industry conditions in Australia; - CHEP Pallecon Solutions, comprising the pre-existing CHEP IBC business, the newly acquired Pallecon business and CAPS, had sales revenue of US$78.3 million, up 82% (85% at constant currency), reflecting the acquisition of Pallecon and continued growth in CAPS; - CHEP Aerospace Solutions sales revenue was US$59.3 million, up 45% (44% at constant currency), reflecting new business growth as well as a full-year contribution from the Driessen Services business acquired in November 2011; and - CHEP Catalyst & Chemical Containers (CCC) sales revenue was flat (up 1% at constant currency) at US$37.9 million, reflecting continued muted customer activity levels. Profit Operating profit was US$28.0 million, down 15% (12% at constant currency). The operating margin was down 3 percentage points at 9%, reflecting business development costs to support growth. Underlying Profit was US$28.4 million, which excludes Significant Items of US$0.4 million on integration and restructuring, down 13% (10% at constant currency). The Underlying Profit margin was 9%, down 3 percentage points. Sales revenue (4)% (3)% Operating profit (20)% (18)% Margin 16% 19% (3)pp Significant Items: Restructuring Impairment of software development costs Underlying Profit (17)% (16)% Margin 18% 21% (3)pp Sales Recall s sales revenue was US$807.0 million, down 4% (3% at constant currency). Growth in both carton volumes and retention revenue in the document storage part of the business was insufficient to offset lower transactional customer activity: i.e. lower rates of document retrieval and other projects carried out on behalf of customers in Document Management Solutions, as well as lower levels of activity in Secure Destruction Services. There was also a negative impact in the first half from lower selling prices for destroyed paper. Profit Operating profit was US$128.2 million, down 20% (18% at constant currency), reflecting the reduction in higher-margin transactional activity, the normalisation of business development costs following lower expenditure in FY12 and a US$15.3 million impairment of software development costs. The operating profit margin was 16%, a reduction of 3 percentage points. Underlying Profit, which excludes US$16.0 million of Significant Items on restructuring and the impairment of software development costs, was US$144.2 million, down 17% (16% at constant currency). The Underlying Profit margin was 18%, down 3 percentage points. Brambles Annual Report Page 15

16 STRATEGY SCORECARD TABLE 5: STRATEGY SCORECARD DIVERSIFICATION - Expanding into more customer segments, broadening the range of products and services and growing geographically FY13 TARGETS 1 PALLETS - Continued sales growth powered by new business wins - Further constant currency sales revenue growth of at least 15% in emerging markets - Continued assessment of and entry into new countries RPCs - Further constant currency sales revenue growth of 15% - Lane expansion with existing retail partners CONTAINERS - Doubling of combined sales revenue in US Automotive, US IBCs and CHEP Aerospace Solutions - Continued assessment of potential strategic acquisition opportunities FY13 ACHIEVEMENTS - Continued delivery of net new business wins in all three Pallets regions (Americas, EMEA and Asia-Pacific) despite subdued economies - Target comfortably achieved: constant currency growth of 19% - Expansion into Balkan and Baltic states in Europe and Gulf States in the Middle East; identification of opportunity to expand into Peru and Colombia - Growth of 10% was below target as rollout in high-growth North American region while strong somewhat slower than anticipated - Lane expansion with existing retail partners in all regions contributed to growth as expected - Target not achieved: conversion times for new contracts in US Automotive proved slow and capital redirected towards Pallecon acquisition million acquisition of IBCs provider Pallecon in December 2012 and subsequent formation of CHEP Pallecon Solutions, combining CHEP s and Pallecon s IBC operations in Europe and the Asia- Pacific. COST LEADERSHIP - Delivering a low-cost business model that leverages Brambles global scale to create sustainable competitive advantage - Delivery of further global operations and logistics efficiencies in Pallets - Improvement in operating margins in Asia and Central & Eastern Europe - Additional US$10 million of global Pallets operations and logistics efficiencies and US$11 million of IFCO integration synergies delivered as planned - Profitable growth in Central & Eastern Europe with focus in Asia on developing business as supply chains modernise GO TO MARKET - Strengthening brand position and enhancing the customer experience through continuously improving the quality of its products and services - Continued rollout of new RPC products and solutions - Innovation for customers with half size and display pallets - Additional launches of newer products including egg crates, banana crates and meat crates throughout Europe and Americas EUROPE - Market tests on plastic half-size pallet in Spain, cardboard layering pallet in France and wheeled merchandising unit in UK - Advanced stage with customers and suppliers in developing nextgeneration quarter pallet in Europe AUSTRALIA & NEW ZEALAND - Sales revenue from fractional/display pallets and beverage trays growing strongly - Next-generation display pallet and improved beverage trays under development for launch in FY14 in conjunction with major retailers NORTH AMERICA - Continued work through customer forums to identify service and product development opportunities - Increased use of pooled half pallets in Canada and to explore similar opportunities in the USA PEOPLE & LEADERSHIP - Attracting, developing and retaining the right individuals and teams that can enhance its culture and bring the required capability for sustainable success - Development of global Containers organisation under new Group President - Expansion of global Containers segment through Pallecon acquisition and continued growth in CHEP Aerospace Solutions and US IBCs 1 As disclosed in 2012 Annual Report. Brambles Annual Report Page 16

17 STRATEGY SCORECARD ONGOING FOCUS AREAS EXECUTION RISKS MITIGATING ACTIONS - Expansion of product and services offering within Pallets - Ongoing assessment and entry if appropriate into emerging geographies - Relatively flat economic growth outlook in developed markets - High levels of penetration in some regions of Pallets operations - Continued exploration of growth opportunities in new products, services, segments and geographies - Extend service offerings in existing markets and expand into new segments and geographies - Continued expansion of RPCs by geography and product - Entrenchment of disposable solutions in some markets - Emphasis on delivery of value to existing retail partners and growers - Continued targeted expansion of Containers portfolio - Lead time to develop opportunities in new pooling markets - Ongoing exploration of organic and acquisitive growth opportunities - Analysis and assessment of asset management performance - Focus on cost performance to drive sustainable competitive advantage - Increased capability in shared services delivery - Requirement for short-term investment to deliver long-term capability - Global rises in input costs, in particular for lumber - Monitor raw material costs and mitigate as required; drive efficiency in other cost areas - Review and improve overhead structure - Continued focus on innovation and product strategy - Leveraging of CHEP global scale, footprint, network and brand - Changes to consumer behaviour and retailing formats - Ongoing activity from new and existing competitors - Development of solutions to suit new retail formats and behaviour (e.g. promotional display pallets) - Build strength of global network and cost leadership position to provide best solutions for customers - Continued emphasis on enhancing and developing talent throughout the group - Nurturing one business culture - Availability of internal candidates for senior roles - Inaugural Fast Track program for a select group of executives aimed at developing company leaders Brambles Annual Report Page 17

18 BOARD & EXECUTIVE LEADERSHIP TEAM BOARD OF DIRECTORS DOUG DUNCAN NON-EXECUTIVE DIRECTOR (INDEPENDENT) Member of Audit Committee Joined Brambles as a Non-executive Director in January He is a Non-executive Director and member of the Audit Committee of JB Hunt Transport and Benchmark Electronics. Doug s career in the transport and logistics industry spans over 30 years. From 2001 until his retirement in 2010, he was President and Chief Executive Officer of FedEx Freight. Prior to that, he spent more than 20 years with the company that ultimately became Viking Freight, where he held senior executive roles including President & Chief Executive Officer from 1998 to 2001, when FedEx acquired Viking. Doug holds a Bachelor of Science degree in Business Administration from Christopher Newport University, Virginia. Age: 62. TONY FROGGATT NON-EXECUTIVE DIRECTOR (INDEPENDENT) Member of Remuneration Committee and Nominations Committee Joined Brambles as a Non-executive Director in June He is a Non-executive Director of Billabong International and Coca-Cola Amatil. Previously, Tony was a Non-executive Director of AXA Asia Pacific Holdings and was Chief Executive Officer of Scottish & Newcastle PLC from May 2003 to October He began his career with the Gillette Company and has held a wide range of sales, marketing and general management positions in many countries with major consumer goods companies including HJ Heinz, Diageo and Seagram. He holds a Bachelor of Law degree from Queen Mary College, London and a Master of Business Administration degree from Columbia Business School, New York. Age: 65. TOM GORMAN CHIEF EXECUTIVE OFFICER Chairman of Executive Leadership Team Joined Brambles as Group President, CHEP EMEA in March 2008 and became Chief Executive Officer in November Previously, Tom had a long career with the Ford Motor Company, and served as President, Ford Australia from March 2004 until January Before joining Ford, he worked for the Bank of Boston. Tom holds a Bachelor of Arts degree in Economics & International Relations from Tufts University, Massachusetts and a Master of Business Administration degree with distinction from Harvard Business School, Massachusetts. Age: 53. DAVID GOSNELL NON-EXECUTIVE DIRECTOR (INDEPENDENT) Member of Audit Committee Re-joined Brambles as a Non-executive Director in December He is President of Global Supply & Procurement for Diageo plc, leading a global team of 9,000 people across manufacturing, logistics and technical operations as well as managing Diageo's multi-billion sterling procurement budget. David was a Nonexecutive Director of Brambles from June 2006 until March 2010, when he retired due to his other commitments at that time. Prior to joining Diageo, David spent 20 years at HJ Heinz, where he served on the UK board and held various European operational positions. He holds a Bachelor of Science degree in Electrical & Electronic Engineering from Middlesex University, England. Age: 56. TAHIRA HASSAN NON-EXECUTIVE DIRECTOR (INDEPENDENT) Member of Remuneration Committee Joined Brambles as a Non-executive Director in December Tahira is based in Toronto, Canada and had a long career with Nestlé. From 2003 to 2006, she was Senior Vice President & Head of Global Supply Chain. Based in Switzerland, this was a new role created to lead the reshaping of Nestlé s global approach to supply chain management. Her other roles included Senior Vice President & Global Business Head for Nescafé Ready To Drink from 2006 to 2009, and Vice President, Deputy Operations, Zone Americas from 2001 to Previously, Tahira held various leadership positions in Nestlé Canada including President, Ice Cream and Executive Vice President, Consumer Demand Chain and Information Services. Tahira is a Fellow of the Chartered Institute of Management Accountants, UK and a Certified Member of the Society of Management Accountants of Canada. Age: 60. STEPHEN JOHNS NON-EXECUTIVE DIRECTOR (INDEPENDENT) Chairman of Audit Committee and member of Nominations Committee Joined Brambles as a Non-executive Director in August He is former Chairman and a Non-executive Director of Leighton Holdings Limited and Spark Infrastructure Group, and a former Executive and Nonexecutive Director of Westfield Group. Stephen had a long executive career with Westfield where he held a number of senior positions including that of Finance Director from 1985 to He has a Bachelor of Economics degree from the University of Sydney and is a Fellow of the Institute of Chartered Accountants in Australia and a Fellow of the Australian Institute of Company Directors. Age: 66. Brambles Annual Report Page 18 16

19 BOARD & EXECUTIVE LEADERSHIP TEAM CONTINUED CAROLYN KAY NON-EXECUTIVE DIRECTOR (INDEPENDENT) Member of Audit Committee Joined Brambles as a Non-executive Director in June She is a Non-executive Director of Commonwealth Bank of Australia, Infrastructure NSW and The Sydney Institute and an External Board Member of Allens. Carolyn has more than 25 years experience in the finance sector and worked as an executive in finance at Morgan Stanley in London and Melbourne, JP Morgan in New York and Melbourne and Linklaters & Paines in London. She holds Bachelor of Law and Arts degrees from the University of Melbourne and a Graduate Diploma in Management from the Australian Graduate School of Management. Carolyn is a Fellow of the Australian Institute of Company Directors, a member of Chief Executive Women and Women Corporate Directors and has a Centenary Medal for services to Australian society in business leadership. Age: 52. GRAHAM KRAEHE AO NON-EXECUTIVE CHAIRMAN (INDEPENDENT) Chairman of Nominations Committee and member of Remuneration Committee Re-joined the Board in December 2005, was appointed Deputy Chairman in October 2007 and Chairman in February He is Chairman and a Non-executive Director of Bluescope Steel Limited and a Director of Djerriwarrh Investments Limited. Graham was a Non-executive Director of Brambles from December 2000 until March 2004, when he retired because of commitments in his past role as Chairman of National Australia Bank Limited. He has also been the Chief Executive Officer of Pacific BBA and Southcorp Limited, a member of the Board of the Reserve Bank of Australia and a Non-executive Director of News Corporation. Graham has a Bachelor of Economics degree from Adelaide University. He is an Officer of the Order of Australia. Age: 70. LUKE MAYHEW NON-EXECUTIVE DIRECTOR (INDEPENDENT) Chairman of Remuneration Committee Joined Brambles as a Non-executive Director in August Luke is a Non-executive Director and Chairman of the Remuneration Committee of InterContinental Hotels Group. He was a Non-executive Director of WH Smith until August 2010, Chairman of Pets at Home Group Limited until March 2010 and Chairman of the British Retail Consortium between 2009 and Luke was a Director of John Lewis Partnership from 1992 to He previously held senior positions at Thomas Cook, British Airways and Shandwick. He has a Bachelor of Arts (Honours) degree from Oxford University and a Master of Economics degree from the University of London. He is a Trustee of BBC Children in Need. Age: 60. BRIAN SCHWARTZ AM NON-EXECUTIVE DIRECTOR (INDEPENDENT) Member of Remuneration Committee Joined Brambles as a Non-executive Director in March He is Chairman and a Non-executive Director of Insurance Australia Group Limited and Deputy Chairman and a Non-executive Director of Westfield Group and Football Federation Australia. In March 2009, he retired as Chief Executive Officer of Investec Bank (Australia) Limited. Having joined Ernst & Young in 1979, Brian became a partner in From 1998 to 2004 he was Chief Executive Officer of Ernst & Young Australia and a member of the Ernst & Young Global Executive Board. Brian is a Fellow of the Institute of Chartered Accountants in Australia and a Fellow of the Australian Institute of Company Directors. He is a Member of the Order of Australia. Age: 60. EXECUTIVE LEADERSHIP TEAM (at 30 June 2013) TOM GORMAN CHIEF EXECUTIVE OFFICER Chairman of Executive Leadership Team Joined Brambles as Group President, CHEP EMEA in March 2008 and became Chief Executive Officer in November Previously, Tom had a long career with the Ford Motor Company, and served as President, Ford Australia from March 2004 until January Before joining Ford, he worked for the Bank of Boston. Tom holds a Bachelor of Arts degree in Economics & International Relations from Tufts University, Massachusetts and a Master of Business Administration degree with distinction from Harvard Business School, Massachusetts. Age: 53. JEAN HOLLEY CHIEF INFORMATION OFFICER Joined Brambles in September 2011 from telecommunications services company Tellabs, Inc, where she was Executive Vice President & Chief Information Officer. Previously, Jean held roles including Vice President & Chief Information Officer at building materials group USG Corporation and senior information technology and information systems roles at environmental services company Waste Management Inc. Jean is also a member of the Board of Directors for VASCO Data Security International, Inc. She has a Master of Science degree in Computer Science & Engineering from the Illinois Institute of Technology and a Bachelor of Science degree in Computer Science & Electrical Engineering from the Missouri University of Science & Technology. Age: 54. Brambles Annual Report Page 19

20 BOARD & EXECUTIVE LEADERSHIP TEAM CONTINUED PETER MACKIE GROUP PRESIDENT, PALLETS Became Group President, Pallets in March 2013, having previously held the following Executive Leadership Team positions: Group President, Pallets Americas and Group President, CHEP Asia-Pacific. Previously, Peter held the positions of: Acting Group President, CHEP Europe, Middle East & Africa; President, CHEP Europe; Senior Vice President, Customer Service, CHEP Europe; Vice President, Strategy, CHEP Europe; and Managing Director, CHEP UK & Ireland. Before joining CHEP in 2001, Peter held senior roles with Boots and The BOC Group. Peter is a qualified chartered engineer and has a Master of Business Administration degree from London Business School. Age: 47. DOUG PERTZ GROUP PRESIDENT, RECALL Joined Brambles as Group President, Recall, in April 2013 from Bolder US Sanitation Group, where he was Chairman and Chief Executive Officer. Prior to that, Doug served as Chief Executive Officer of a number of companies, including: Clipper Windpower, a utility-scale wind turbine manufacturer; IMC Global (now Mosaic Company), a leading miner and producer of concentrated phosphate, potash and salt for agricultural and industrial applications; and Culligan Water Technologies. He was previously a group executive at Danaher and held various international management roles with Cummins Engine Company and Caterpillar. Doug holds a Bachelor of Mechanical Engineering degree from Purdue University, Indiana, USA. Age: 57. KARL POHLER GROUP PRESIDENT, RPCs Became Group President, RPCs in October 2011, having been Chief Executive Officer, IFCO Systems, which Brambles acquired in March 2011, since August Karl was an executive member and Chief Executive Officer of the Board of Directors of IFCO from December Prior to joining IFCO, he was Chairman of the Board of Management of Computer 2000 AG, and, at the same time, European President of Computer 2000/Tech Data Corp. From 1997 to 1999, he served as Chief Executive Officer of Sony Deutschland GmbH. From 1993 to 1996, he chaired the Board of Management of Computer 2000 Deutschland GmbH. From 1980 to 1992, he was active in executive management functions for Digital Equipment GmbH. Karl will retire on 30 September Age: 59. JASON RABBINO GROUP PRESIDENT, CONTAINERS Joined Brambles in May 2012 from diversified industrial company Tyco International, where he was Senior Vice President of Enterprise Solutions. Previously, Jason held a number of senior executive roles in Tyco s ADT electronic security solutions business, managed services company Aramark Corporation and management consultancy McKinsey & Company. Before entering the corporate world, he was an officer and aviator in the United States Navy. He has a Master of Business Administration degree from the Wharton School of the University of Pennsylvania. Age: 44. NICK SMITH GROUP SENIOR VICE PRESIDENT, HUMAN RESOURCES Joined Brambles in November Previously, he was Group Human Resources Director for Inchcape, the international automotive retail group. Prior to this, Nick spent a number of years in the telecommunications industry, firstly with British Telecom and then with Cable & Wireless. During this period, Nick spent three years working for Cable & Wireless Optus in Australia, where he was Human Resources Director. He has also worked for KPMG and Macquarie Bank. Nick is a qualified management accountant, has a Bachelor of Science (Economics) degree in International Politics and a Master of Business Administration degree. Age: 52. ZLATKO TODORCEVSKI CHIEF FINANCIAL OFFICER Joined Brambles as Chief Financial Officer in October Previously, Zlatko was Chief Financial Officer of oil and gas exploration and production company Oil Search Limited. Prior to that, he had a long international career with BHP and BHP Billiton including as Chief Financial Officer, Energy. Zlatko is a Fellow of CPA Australia and Fellow of Chartered Secretaries Australia. He holds a Master of Business Administration degree and a Bachelor of Commerce degree from the University of Wollongong, Australia. Age: 45. Brambles Annual Report Page 20

21 CORPORATE GOVERNANCE STATEMENT INTRODUCTION Brambles is a global provider of Pooling Solutions and information management services and operates in more than 50 countries. It is therefore subject to an extensive range of legal, regulatory and governance requirements. Brambles is committed to observing the requirements applicable to publicly listed companies in Australia. The Board is conscious that best practice in the area of corporate governance is continuously evolving, and will therefore continue to anticipate and respond to further corporate governance developments. This Corporate Governance Statement outlines the key components of Brambles governance framework in place during the year ended 30 June 2013 (Year), by reference to the Australian Securities Exchange Corporate Governance Council Corporate Governance Principles & Recommendations, Second Edition (CGPR). During the Year, the Board believes Brambles met or exceeded all the requirements of the CGPR. The information provided in this Corporate Governance Statement is current as at 31 July A checklist summarising Brambles compliance with the CGPR is included at the end of this Statement. Various documents referred to in this Statement have been posted in the Corporate Governance section of the Brambles website at The checklist includes more detailed guidance on the location of all the governance-related documents available at PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT 1.1 ROLE OF THE BOARD AND EXECUTIVE MANAGEMENT Role of the Board and executive management The Board has overall responsibility for overseeing the effective management and control of the Group on behalf of Brambles shareholders, and supervising executive management s conduct of the Group s affairs within a control and authority framework which is designed to enable risk to be prudently and effectively assessed and monitored. The Board has adopted a schedule of matters reserved to it for decision, a copy of which can be found at and further details of which are in section The roles of the Chairman and executive management, led by the Chief Executive Officer, are separated and clearly defined: - The Chairman, Graham Kraehe, is responsible for leadership of the Board, setting the Board s agenda, conducting Board meetings, facilitating effective communication with shareholders and the conduct of shareholder meetings; and - Executive management, led by the Chief Executive Officer, Tom Gorman, has been delegated responsibility for the management of Brambles within the control and authority framework referred to above. The levels of authority for management are periodically reviewed by the Board and are documented. The Chief Executive Officer is assisted by Brambles Executive Leadership Team (ELT) and the USA and Asian Advisory Groups. The Non-executive Directors constructively challenge the development of strategy. They review the performance of management in meeting agreed objectives and monitor the reporting of performance. They have a prime role in appointing and where necessary, recommending the removal of, Executive Directors, and in their succession planning. The structure of the Board ensures that no individual or group of individuals dominates the Board s decision-making process. The ELT, a management committee, assists in implementing Brambles strategic direction, and ensuring its resources are well managed. The ELT has a range of responsibilities, which include: - Reviewing business and corporate strategies; - Formulating major policies in areas such as succession planning and talent management, human and capital resources management, information technology, development of strategy, risk management, communications and post-investment project reviews; - Leading initiatives which may from time to time vary, but include Zero Harm and innovation; and - Leading the implementation of change processes. Biographical details for the members of the ELT are shown on pages 17 and 18. The function of the USA and Asian Advisory Groups, which are equivalent to management committees, are to assist management to develop Brambles strategic direction in the USA and Asia respectively, and to strengthen Brambles stakeholder relationships in those regions. The Chief Executive Officer is a member of both Advisory Groups. The other members comprise external persons with relevant business and industry experience in, and senior executives of Brambles with operating or functional responsibility for, the applicable region. The Advisory Groups meet four times a year Responsibilities of the Board The Board is responsible for approving the Group s overall strategic objectives, facilitating the provision of appropriate financial and human resources to meet these objectives and reviewing executive management s performance. The schedule of matters reserved to the Board for approval includes: - The Group s overall strategic direction and strategic plans for its major business units; - Acquisitions or disposals of assets which exceed the authority limits delegated to the Chief Executive Officer and Chief Financial Officer; - Budgets, financial objectives and policies, and significant capital expenditure; - Brambles financial statements and published reports; - The Group s systems of internal control and risk management processes, and the annual review of their effectiveness; - Changes to the Group s capital structure (other than changes resulting from established employee share plans); - The appointment of key senior executives; - The Group s Diversity Policy; and - The Board skills matrix. The Board has delegated some of its functions to the Audit, Nominations and Remuneration committees, although overall responsibility for those functions remains with the Board. The charters of the Board committees also require certain matters to be approved by the Board including, among other matters, the executive remuneration policy and the appointment of the external auditors. Details of the Board committees are set out in sections 2.4, 4.1 and 8.1 and the committee charters can be found at From time to time, the Board establishes special committees to consider and approve specific matters. The Board is also supported by the ELT (see section ) Allocation of individual responsibilities Formal letters of appointment, which are contracts for service but not contracts of employment, have been put in place for all Non-executive Directors. The letters set out the key terms and conditions of their engagement, including time commitments, corporate expectations and, if appropriate, any special duties or assignments. A template letter of appointment for a Non-executive Director is available at Brambles Annual Report Page 21

22 CORPORATE GOVERNANCE STATEMENT CONTINUED Senior executives have employment contracts setting out, amongst other things, their term of office, rights, responsibilities and entitlements on termination, and job descriptions setting out their duties. 1.2 PERFORMANCE EVALUATION OF SENIOR EXECUTIVES Brambles has a well-established performance management and development planning process, which is used throughout the Group. The process involves objective setting consistent with Brambles remuneration policy and targets for cash and equity-based incentive plans set by the Remuneration Committee. Personal development planning, half year reviews and full year appraisals feed into a performance rating, leading to the assessment of annual bonuses. Senior executives (including Executive Directors and the ELT) all participate in this process, which is overseen by the Remuneration Committee. Performance evaluations for senior executives, including the Chief Executive Officer and the ELT, were carried out during the Year in accordance with this process Induction of senior executives Business units have procedures for the induction of senior executives, to assist them in participating fully and actively in management decision-making at the earliest opportunity after commencing their new roles. PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE At the date of the Directors Report, the Board consists of ten members, with one Executive Director (the Chief Executive Officer) and nine Non-executive Directors. The former Chief Financial Officer, Greg Hayes, retired as an Executive Director on 1 October The biographies for each of the current Directors, shown on pages 16 and 17, indicate the breadth of their business, financial and international experience. This gives the Directors the range of skills, knowledge and experience essential to govern Brambles, including an understanding of the health, safety, environmental and community related issues which it faces. The Board considers that its current composition reflects an appropriate balance of Executive and Non-executive Directors. The table below sets out the names of the Directors in office at the date of the Directors Report, the years of their appointment and, where applicable, their most recent election by shareholders, their status as Executive or Non-executive Directors, whether they will retire and seek election or re-election at the 2013 Annual General Meeting (AGM), and when they are next due for re-election. 2.1 INDEPENDENT DIRECTORS Independent decision-making The Board recognises the importance of independent judgement and constructive debate on all issues under consideration. With the approval of the Chairman, Directors may take independent professional advice at Brambles expense in the furtherance of discharging their duties and responsibilities. None of the Directors availed themselves of this right during the Year. The Chairman holds meetings with the Non-executive Directors from time to time, including meetings at scheduled sessions, without the presence of the Executive Directors or other executives. The Non-executive Directors meet without the Chairman present on such occasions as they considered appropriate Independent Directors The Board has considered the independence of each of the Directors in office as at the date of the Directors Report and concluded that all Non-executive Directors are independent. Therefore the Board has a majority of independent Directors. In reaching this conclusion, the Board had regard to the relationships set out in Box 2.1 of the CGPR and noted that one of these relationships exists. Carolyn Kay is a director of the Commonwealth Bank of Australia (CBA), which, at various times during the Year, was a substantial shareholder of Brambles. The Board noted that, except for 2,446,655 shares (being 0.157% of Brambles issued share capital at the date of this Statement), CBA s relevant interests in Brambles shares are exercised either as a superannuation trustee; a life company holding statutory funds; a responsible entity or manager of a managed investment scheme; under an investment mandate; by external managers unrelated to the CBA group; or subject to client direction. The Board does not consider that Carolyn Kay s relationship with CBA gives rise to any actual or perceived loss of independence on her part because of the manner in which CBA s relevant interests in Brambles shares are held. In considering the matters in Box 2.1 of the CGPR, the Board considered that a customer was material if it accounted for more than 2% of Brambles consolidated gross revenue and that a supplier was material if Brambles accounted for more than 2% of the supplier s consolidated gross revenue. Name Year appointed 1 Year last elected Executive or Non-executive Independent Seeking re-election in Next due for re-election 2 D G Duncan Non-executive Yes No 2014 A G Froggatt Non-executive Yes Yes 2013 T J Gorman Executive No No N/A 3 D P Gosnell Non-executive Yes Yes 2013 T Hassan Non-executive Yes No 2014 S P Johns Non-executive Yes No 2014 S C H Kay Non-executive Yes No 2015 G J Kraehe AO Non-executive Yes No 2015 C L Mayhew Non-executive Yes Yes 2013 B M Schwartz AM Non-executive Yes No For the purposes of this table, the year appointed is the year the relevant Director was first elected to the Boards of Brambles or BIL and BIP, as the case may be. 2 See section for an explanation of the determination of the years when Non-executive Directors are due for re-election. 3 Following an amendment to Brambles constitution which was approved by shareholders at the 2010 AGM, it is no longer necessary for the managing director of Brambles to stand for re-election. Tom Gorman holds the role of managing director, but is referred to by the title of Chief Executive Officer. 4 David Gosnell also served as a Director from 2006 to 2010, and re-joined the Board in Graham Kraehe also served as a Director from 2000 to 2004 and re-joined the Board in Brambles Annual Report Page 22

23 CORPORATE GOVERNANCE STATEMENT Regular assessments Directors are required to complete a declaration of interest form prior to their appointment. This form is tabled at the Board meeting to consider the appointment of the relevant Director. If their circumstances change or they acquire any office, property or interest which may conflict with their office as a Director of Brambles or the interests of Brambles, Directors are required to disclose its character and extent in writing at the next Board meeting. The Board also makes an annual assessment of the independence of each Non-executive Director. If the Board concludes that a Director has lost their status as an independent director, that conclusion will be advised to the market in a timely manner. Directors are generally not entitled to attend any part of a Board meeting, or to vote on any matter, in which they have a material personal interest unless the other Directors unanimously decide otherwise. In appropriate cases, Directors may be required to absent themselves from a meeting of the Board while such a matter is being considered. 2.2 INDEPENDENT CHAIRMAN The Board has concluded that the Chairman is independent and that his other positions do not prevent him from devoting sufficient time to perform the role effectively. As the Chairman is independent, the Board does not consider it necessary to appoint a lead independent Director. The Chairman is responsible for facilitating the effective contribution of Non-executive Directors, who are to receive accurate, timely and clear information so that they may effectively discharge their duties and responsibilities. The Chairman is also responsible for fostering constructive relations between Executive and Non-executive Directors. 2.3 ROLES OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER The roles of Chairman and Chief Executive Officer are exercised by two different individuals and are clearly documented, as discussed in section of this Statement. The Chairman does not have a history of employment with Brambles. 2.4 NOMINATIONS COMMITTEE Purpose of the Nominations Committee The objective of the Nominations Committee is to support and advise the Board in fulfilling its responsibilities to shareholders in ensuring that the Board is comprised of individuals who are best able to discharge the responsibilities of Directors Charter A copy of the Nominations Committee s Charter giving full details of its duties and responsibilities can be found at The Nominations Committee s Charter also sets out its composition, structure, membership requirements and the procedures for inviting non-members to attend meetings. The Committee is authorised to seek any information it requires from any Group employee or from any other source, including obtaining outside legal or other independent professional advice Composition of the Nominations Committee The Nominations Committee is comprised entirely of Non-executive Directors, all of whom the Board considers to be independent. The members of the Nominations Committee are Graham Kraehe (Committee Chairman), Stephen Johns and Tony Froggatt. Details of Nominations Committee meetings held during the Year, and attendance at those meetings, is set out in the Directors Report Other Information on page Responsibilities The Nominations Committee discharges its responsibilities by meeting regularly throughout the year and, among other matters: - Assessing periodically the Board skills matrix to determine that it includes the skills required to discharge competently the Board s duties, having regard to the strategic direction of the Group, and making recommendations to the Board on any changes which should be made to that matrix; - Having regard to the Board skills matrix, assessing the skills currently represented on the Board to determine whether those current skills meet the required skills identified; - Reviewing the structure, size and composition (including the mix of skills, experience, expertise and diversity having regard to the Board skills matrix) of the Board and the effectiveness of the Board as a whole, and keeping under review the leadership needs of Brambles, both executive and non-executive, with a view to ensuring the continued ability of Brambles to compete effectively in the marketplace; - Preparing a description of the role, capabilities and skills required for any Board appointment (Role Specification), identifying suitable candidates to fill Board vacancies, and nominating candidates for the approval of the Board; - In identifying suitable candidates for a Board appointment, if necessary, causing: > A search to be undertaken by an appropriately qualified independent third party acting on a brief prepared by the Nominations Committee, which includes the Role Specification; > The search to be international, extending to those countries in which candidates with the necessary skills would ordinarily be expected to be found; and > The pool of candidates to include qualified persons who would fill an existing diversity gap having regard to the Board skills matrix, Brambles Diversity Policy (see section 3.2) and the diversity objectives adopted by the Board from time to time; - Ensuring that, on appointment, Non-executive Directors receive a formal letter of appointment, setting out the time commitment and responsibilities envisaged in the appointment; - On any re-appointment of a Non-executive Director on the conclusion of their specified term of office, undertaking a process of review of the retiring Non-executive Director s performance during the period from their appointment or most recent re-appointment, as the case may be, to the Board; - Reviewing annually the time commitment required of Non-executive Directors and carrying out performance evaluations to assess whether the Non-executive Directors are devoting enough time to fulfilling their duties; and - Giving full consideration to whether succession plans are in place to maintain an appropriate mix of skills, experience, expertise and diversity on the Board, and satisfying itself that processes and plans are in place in relation to both Board (particularly for the key roles of Chairman and Chief Executive Officer) and other senior executive appointments Selection and appointment process and re-election of Directors The Board is conscious of the need to ensure that proper processes are in place to deal with succession issues at Board level. As set out in section , the Nominations Committee assists the Board in the Board selection process, which involves the use of a Board skills matrix. The Nominations Committee has adopted a Board skills matrix. The matrix incorporates the following elements: function (finance, accounting, operations); international management (Americas, Europe, Asia); industry (logistics, retail, fast moving consumer goods); diversity (male/female, international residency, regional/cultural background); and customer perspectives. In adopting the matrix, the Nominations Committee noted that it was an iterative document and would be reviewed and revised from time Brambles Annual Report Page 23

24 CORPORATE GOVERNANCE STATEMENT CONTINUED to time to meet Brambles ongoing needs. During the Year, the Nominations Committee carried out a review of the Board skills matrix and determined that no changes to it were required. With the appointment of three new Directors (Doug Duncan, David Gosnell and Tahira Hassan) to the Board during the 2012 Year, the Board considers that, having regard to the Board skills matrix, the current composition of the Board is an appropriate balance of skills and experience. Notwithstanding this, the Nominations Committee has determined it would be desirable to appoint, at an appropriate time, an additional Non-executive Director with an international retail background. Each Non-executive Director receives a Non-executive Director s formal letter of appointment (see section ) which sets out, among other things, the time commitment required and specifies that the Director should consult with the Chairman before accepting any additional commitments which may impact on their role. Any Non-executive Directors who are standing for election or re-election at the next AGM are asked to consider their other significant commitments and specifically acknowledge to Brambles that they will have sufficient time to meet what is expected of them as Directors of Brambles. Details of the number of Board and committee meetings held during the Year, including attendance at those meetings by each of the Directors and committee members, are set out in the Directors Report Other Information on page 51. Directors are appointed for an unspecified term, but are subject to election by shareholders at the first general meeting after their initial appointment by the Board. No Director (other than the Chief Executive Officer) may serve for more than three years without being re-elected by shareholders. Re-appointment is not automatic. The Board reviews whether retiring Directors should stand for reelection, having regard to their performance and the contribution of their individual skills and experience to the desired overall composition of the Board and the Board s skills matrix. At the 2012 AGM, seven Non-executive Directors were elected or reelected to the Board. As a result, they would all be eligible to stand for re-election at the 2015 AGM. To enable a more even number of Non-executive Directors to be eligible to stand for re-election at the next three AGMs, the Board decided that the year in which they would be eligible to stand for re-election would be determined by lot. The result of that lot, and the order in which Non-executive Directors will be eligible to stand for re-election, are set out in the table in Section on page 20. The Non-executive Directors formal letters of appointment confirm that the Non-executive Directors have no right to compensation on the termination of their appointment for any reason, other than for unpaid fees and expenses for the period actually served. 2.5 PROCESS FOR EVALUATING THE PERFORMANCE OF THE BOARD, ITS COMMITTEES AND DIRECTORS The Board and its committees carry out both internal and external evaluations, with the form of evaluation being determined each year. For the Year, the Board undertook an internal evaluation of its performance as a whole and the performance of each of its committees. The review involved the completion of a detailed questionnaire by each of the Directors and selected Brambles executives and Board advisors on matters relevant to the Board and Committees performance. The outcomes of the questionnaires were collated and the results were reported to the Board and each Committee by PricewaterhouseCoopers. These findings were reviewed and discussed by the Board and Committees, and key issues arising from the evaluations were identified for further action. An internal evaluation of the performance of each Non-executive Director, including those standing for re-election at the 2013 AGM, was also conducted. The Chairman reviewed the results of the performance evaluations with each Director, and reported on the results of those evaluations. The Board unanimously resolved to recommend each Non-executive Director s re-election. The Chairman of the Audit Committee reviewed the results of the Chairman s performance evaluation with him and the Board Details of those Directors standing for re-election, are set out in the table in section on page Induction and education Newly appointed Directors receive appropriate induction and training, specifically tailored to their needs. Appointees are provided with an information pack including governance policies and business information, taken to visit operating sites and receive presentations on Brambles businesses and functions by its business unit leaders and functional heads. On an ongoing basis, Directors participate in various seminars and conferences held by industry and professional bodies. In addition, Board meetings regularly include sessions on recent developments in governance and corporate matters, significant accounting matters, operational site visits and meetings with local staff and major customers Access to information The Board receives accurate, timely and clear information so that it may effectively discharge its duties and responsibilities. Where necessary, Directors seek clarification or request the provision of further information to assist with their decision-making processes. The Board committee charters document the committees unrestricted rights to seek information from any Group employee or from any other source. Presentations to the Board are frequently made by senior executives The Board and the Company Secretary The Board is assisted by the Company Secretary who, under the direction of the Chairman, is responsible for facilitating good information flows within the Board and its committees and between senior executives and Non-executive Directors, as well as the induction of new Directors and the ongoing professional development of all Directors. The Company Secretary is responsible for monitoring compliance with the Board s procedures and for advising the Board, through the Chairman, on all governance matters. All Directors have access to the advice and services of the Company Secretary, whose appointment and removal is a matter for the Board. The Company Secretary is Robert Gerrard. His qualifications and experience are set out on page 51. PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING 3.1 ESTABLISH A CODE OF CONDUCT Brambles has a Code of Conduct, which provides an ethical and legal framework for all employees in the conduct of Brambles business. Brambles Code of Conduct includes the following schedules: - Corporate Social Responsibility Policy; - Speaking Up Policy; - Continuous Disclosure & Communications Policy; - Group Guidelines for Serious Incident Reporting; - Environmental Policy; - Competition Compliance Policy; - Health & Safety Policy; - Diversity Policy; - Securities Trading Policy; - Risk Management; - Guidelines for Document Management; and - Social Media Policy. Brambles Annual Report Page 24

25 CORPORATE GOVERNANCE STATEMENT CONTINUED A Supplier Policy was developed during the Year and formally adopted subsequent to the end of the Year and will be added to the Code of Conduct during FY14. The policies listed above set out the reporting responsibilities of specified individuals, or in some cases, all employees. The Audit Committee is responsible for monitoring compliance with the Speaking Up Policy. At each meeting, the Audit Committee receives a report on investigations into any matters raised under that policy relating to financial control issues. A report on all matters raised under the Speaking Up Policy is provided to the Board at each of its meetings. A copy of the Code of Conduct is available on Purpose of the Code of Conduct The Code of Conduct defines how Brambles relates to its shareholders, employees, customers, suppliers and the communities in which it operates. It includes Brambles general principles on business integrity. All employees are expected to conduct business in accordance with the laws and regulations of the countries in which the business is located, and in a manner so as to enhance the reputation of Brambles Application of the Code of Conduct The Code of Conduct has been translated into 20 languages. This means that all Brambles employees can read the Code in their first language. The Code of Conduct can also be used to form part of employees terms and conditions of employment. Non-executive Directors are required to agree to comply with the Code of Conduct and to acknowledge that their performance assessments will include an element on conformity with the Code. The Code of Conduct is not intended to be all-encompassing. There are areas in which Brambles expects its businesses to develop detailed policies in accordance with local requirements. The Code of Conduct provides a set of guiding principles that may be supplemented with additional local policies. It provides a common behavioural framework. Brambles implements the Code of Conduct through a variety of induction and training programs. During the Year, ongoing training took place with the aim of enhancing employees compliance with certain of the policies under the Code. The Code of Conduct requires Brambles contractors to adhere to Brambles health and safety, environmental and serious incident reporting standards and requires consultants or professional advisers who are engaged to undertake work for the Group to comply with the Continuous Disclosure & Communications Policy. 3.2 ESTABLISH A DIVERSITY POLICY The Board has adopted a Diversity Policy which forms part of Brambles Code of Conduct. (Previously, many aspects of the Diversity Policy were covered under the Group s employment and equal opportunity policies.) When adopting the policy, the Board believed that it should deal with diversity across a range of issues and not be solely limited to gender. Brambles vision statement for diversity, set out in the policy, is: - Brambles is committed to creating and maintaining a culture which delivers outstanding performance and results. - Diversity is essential to Brambles long term success. Brambles values and fosters diversity because it allows: > Customers needs, both today and in the future, to be recognised and addressed; > All employees to feel valued and able to perform to their best; and > Brambles to have access to the widest possible talent pool. The Diversity Policy provides, amongst other things, that: - Brambles is committed to selecting, recruiting, developing and supporting people solely on the basis of their professional capability and qualifications, irrespective of gender, ethnicity, nationality, class, colour, age, sexual identity, disability, religion, marital status or political opinion; - Brambles selects, retains and develops the best people for the job on the basis of merit and job related competencies without discrimination; - Where appropriate, Brambles will engage external agencies to assist it in the identification, selection and assessment of candidates; - Brambles will continue to develop talent management programs such as: > Development programs for senior executives; > Development programs for next generation leaders; and > Mentoring programs; and - On an annual basis, the Board will review and report on the: > Relative proportion of women and men in the workforce at all levels; > Statistics and trends in the age, nationality and professional backgrounds of Brambles executive population; > Measurable objectives for achieving gender and nationality diversity; and > Progress towards achieving those objectives. 3.3 GENDER DIVERSITY OBJECTIVES The schedule of matters reserved to the Board was amended in 2011 to add the following Board responsibilities: - Determining measurable objectives for achieving gender diversity and annually assessing both the objectives and the progress towards achieving them - Annually review and report on the relative proportion of women and men in the workforce at all levels of the Group. Brambles had previously committed to establishing diversity targets during 2011 in its 2010 Sustainability Report. In considering the measurable objectives for achieving diversity, the Company considered a number of areas that it believed were important to both demonstrate and achieve a diverse workforce. These included: - Nationality Brambles believes that it is essential that its employees represent the communities in which they operate. The Company already has a high representation of different nationalities in its employee population. The general managers and executive teams in each of the countries in which Brambles operates are made up almost entirely of people of that nationality. Brambles monitors this through its bi-annual talent management process with a view to continuing the process and expanding the access of differing nationalities to its global operations. - Professional background - Brambles also believes that its employees should be able to relate to the Company s customers. It therefore recruits extensively from the sectors in which it operates, to ensure that the Company has the right blend of skills and experience. This aspect of diversity is also monitored through the bi-annual talent management process. - Gender Brambles believes that its executive population should reflect the overall balance of employees in its organisation. This is the best measure for Brambles, as it has a large proportion of employment activities in heavy manual duties, and therefore an overall workforce that is predominantly male. As at 31 July 2013, women comprise 20% of its Board and 25% of its management (which is defined as the manager, director, vice president and senior vice president grades). In calculating these percentages, Brambles included each permanent employee on the payroll, but excluded casual employees and contractors. During 2011, Brambles adopted a measurable objective for women to represent 30% of its Board and across the ELT and management Brambles Annual Report Page 25

26 CORPORATE GOVERNANCE STATEMENT CONTINUED positions by 30 June At the time these targets were set, the integration into the Group of the recently acquired IFCO, Paramount Pallets and the CHEP Aerospace businesses was taking place and a complete analysis of the gender diversity within those businesses had not yet occurred. It has since become apparent that Brambles will need additional time to meet the targets set in As a result, during the 2012 Year the measurable objective of having women represent 30% of its management positions has been revised to 30 June The objective of having women represent 30% of Board and ELT positions by 30 June 2015 remains unchanged. 3.4 GENDER DIVERSITY REPORTING Each year, Brambles will publish the composition of its executive population by grade against this target, showing progress year on year. The position at 31 July 2013 is as follows: 2018 Objective 6 % Females at % Females at 31 July June Board 30% 20.0% 18.2% Executive Leadership Team 30% 12.5% 11.1% Senior Vice President 30% 15.6% 21.8% Vice President 30% 11.7% 10.7% Director 30% 21.3% 21.8% Manager 30% 26.8% 28.3% Further information on diversity is included in the Diversity & Inclusion section of the Sustainability Review, which will be available at from the end September PRINCIPLE 4: REPORTING SAFEGUARD INTEGRITY IN FINANCIAL 4.1 ESTABLISH AN AUDIT COMMITTEE Brambles confirms that, in accordance with ASX Listing Rule 12.7, it has had an Audit Committee throughout the Year Purpose of the Audit Committee The objective and purpose of the Audit Committee is to assist the Board in fulfilling its corporate governance and oversight responsibilities by: - Monitoring and reviewing: > The integrity of financial statements; > Internal financial controls; > The objectivity and effectiveness of the internal auditors; and > The independence, objectivity and effectiveness of the external auditors; - Making recommendations to the Board in relation to the appointment or removal of the external auditors, the approval of their remuneration and the terms of their engagement, including the rotation of external audit engagement partners; - Assessing whether the Committee is satisfied that the independence of the external auditors has been maintained, having regard to any non-audit related services; - Reviewing and monitoring the policy on the engagement of the external auditors to supply non-audit services (set out in the Charter of Audit Independence, a copy of which can be found 6 The objective of having women represent 30% of Board and ELT positions by 30 June 2015 remains unchanged. 7 The percentages for senior vice president, vice president, director and manager exclude the employees of IFCO RPCs and Paramount Pallets which, as recent acquisitions, have not yet completed the banding classification process into senior vice president, vice president, director and manager categories. at taking into account relevant legal and ethical guidance regarding the provision of non-audit services by the external auditors; and - Reporting to the Board, identifying any matters relating to the above in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken. 4.2 STRUCTURE OF THE AUDIT COMMITTEE Composition of the Audit Committee The Audit Committee has four members and is chaired by Stephen Johns, an independent Director Importance of independence The Audit Committee is comprised entirely of Non-executive Directors, all of whom the Board considers to be independent Technical expertise The Board considers that each of the members of the Audit Committee has recent and relevant financial and accounting experience and an understanding of accounting and financial issues relevant to Brambles. The members of the Audit Committee as at 31 July 2013, including details of their relevant qualifications, are as follows: - Stephen Johns had a long executive career with Westfield where he held a number of senior positions including that of Finance Director from 1985 to He is the former Chairman of Leighton Holdings Limited and Spark Infrastructure Group and a former Executive and Non-executive Director of the Westfield Group. He has a Bachelor of Economics degree from the University of Sydney and is a Fellow of the Institute of Chartered Accountants in Australia and a Fellow of the Australian Institute of Company Directors. - Doug Duncan is a Non-executive Director and a member of the Audit Committee of JB Hunt Transport and Benchmark Electronics. From 2001 until his retirement in 2010, Doug was President and CEO of FedEx Freight and prior to that he spent more than 20 years with the company that ultimately became Viking Freight, where he held senior executive roles including President & CEO from 1998 to 2001, when FedEx acquired Viking. Doug holds a Bachelor of Science degree in Business Administration from Christopher Newport University, Virginia. - David Gosnell is President of Global Supply & Procurement for Diageo plc, leading a global team of 9,000 people across manufacturing, logistics and technical operations as well as managing Diageo's multi-billion sterling procurement budget. David was a Non-executive Director of Brambles from June 2006 until March 2010, when he retired due to his other commitments at that time. Prior to joining Diageo, David spent 20 years at HJ Heinz where he served on the UK board and held various European operational positions. He holds a Bachelor of Science degree in Electrical and Electronic Engineering from Middlesex University, England. - Carolyn Kay is a Non-executive Director and a member of the Audit Committee of Commonwealth Bank of Australia, Infrastructure NSW and an External Board Member of Allens. She has more than 25 years experience in the finance sector and worked as an executive in finance at Morgan Stanley in London and Melbourne, JP Morgan in New York and Melbourne and as a finance lawyer at Linklaters & Paines in London. Carolyn holds Bachelor degrees in Law and Arts from the University of Melbourne and a Graduate Diploma in Management from the Australian Graduate School of Management. She is a Fellow of the Australian Institute of Company Directors. Stephen Johns, Doug Duncan, David Gosnell, Tony Froggatt and Carolyn Kay, independent Non-executive Directors, were members of the Audit Committee throughout the Year. Tony Froggatt retired as a member of the Audit Committee with effect from 1 July 2013 Brambles Annual Report Page 26 24

27 CORPORATE GOVERNANCE STATEMENT CONTINUED due to his appointment to the Remuneration Committee on the same date. 4.3 AUDIT COMMITTEE CHARTER Charter The Audit Committee has a Charter which includes its duties and responsibilities, composition, structure, membership requirements, authority, access rights and sets out a procedure for inviting non-members to attend its meetings. The Charter requires the Audit Committee to meet with internal and external auditors at least once a year without executive management being present. A copy of the Audit Committee s Charter, which is reviewed annually, can be found at Responsibilities The Audit Committee discharges its responsibilities by meeting regularly throughout the year and, among other matters: - Reviewing, and challenging where necessary, the actions and judgment of management in relation to full year and half year financial reports and other announcements relating to those reports prepared for release to the ASX, regulators and the public, before making appropriate recommendations to the Board; - Reviewing the audit plans of the internal auditors, including the scope and materiality level of their audits; monitoring compliance with, and the effectiveness of, the audit plans of the internal auditors; reviewing reports from the internal auditors on their audit findings, management responses and action plans in relation to those findings, and reports from the internal auditors on the implementation of those action plans; and facilitating an open avenue of communication between the internal auditors, the external auditors and the Board; - Reviewing the audit plans of the external auditors, including the nature, scope, materiality level and procedures of their audits; monitoring compliance with, and the quality and effectiveness of, the audit plans of the external auditors; and reviewing reports from the external auditors in relation to their major audit findings, management responses and action plans in relation to those findings, and reports from the external auditors on the implementation of those action plans; and - Reviewing and recommending to the Board the fees payable to the external auditors, monitoring compliance with the Charter of Audit Independence and pre-approving the performance by the external auditors of any non-audit related work and any proposed fees to be paid to the external auditors for that work, for which its approval is required by the Charter of Audit Independence. The Charter divides non-audit work into three categories: work which must be approved by the Chief Financial Officer (if fees will fall below specified limits); work which must be approved by the Audit Committee; and work which is prohibited. Prior consultation with, and approval of the Chief Financial Officer or Audit Committee, as prescribed by the Charter, is required whenever management recommends that the external auditors undertake non-audit work. Internal accounting, valuation services, actuarial services and internal audit services must not be performed by the external auditors. The Audit Committee is also responsible for monitoring the Brambles Speaking Up Policy, that it is communicated properly and complied with throughout Brambles, and for monitoring that appropriate protection against victimisation and dismissal is given to Brambles employees who make certain disclosures in the public interest Meetings Details of the number of Audit Committee meetings held during the Year, and attendance at those meetings, are set out in the Directors Report Other Information on page 51. Audit Committee papers are provided to all Directors and minutes of meetings are included in the papers for subsequent Board meetings. There is also an open invitation for all Directors to attend Audit Committee meetings. Directors who are not members of the Audit Committee regularly attend its meetings. From the 2012 financial year, all Directors are required to attend the Audit Committee meetings at which the half and full-year financial statements are considered Reporting The Chairman of the Audit Committee reports to the Board on the Committee s proceedings and on all matters relevant to the Committee s duties and responsibilities. 4.4 EXTERNAL AUDITOR PricewaterhouseCoopers has been engaged by the Board to act as external auditors to Brambles since the 2002 financial year. Under the terms of engagement, the Australian audit engagement partners rotate every five years. Paul Bendall was appointed as lead audit engagement partner in the 2012 financial year. The Audit Committee is responsible for making recommendations to the Board on the selection, appointment, evaluation and removal of external auditors, setting fees and ensuring that the external auditors engagement partners are rotated at appropriate intervals. PRINCIPLE 5: DISCLOSURE MAKE TIMELY AND BALANCED 5.1 ESTABLISH A CONTINUOUS DISCLOSURE POLICY Brambles is committed to the promotion of investor confidence by taking all steps within its power to ensure that trading in its securities occurs in an efficient and informed market. Brambles recognises the importance of effective communication as a key part of building shareholder value, and that to prosper and grow, it must earn the trust of shareholders, employees, customers, suppliers and communities, by being open in its communications and consistently delivering on its commitments. The Board has adopted a Continuous Disclosure & Communications Policy to: - Reinforce Brambles commitment to the continuous disclosure obligations imposed by law and to describe the processes Brambles implements to ensure compliance; - Outline Brambles corporate governance standards and related processes and ensure that timely and accurate information about Brambles is provided equally to all shareholders and market participants; and - Outline Brambles commitment to communicating effectively with shareholders and encouraging shareholder participation in shareholder meetings. To achieve the above objectives and satisfy regulatory requirements, the Board provides information to shareholders and other market participants in several ways: - Brambles releases significant announcements directly via the ASX and immediately places copies on - Brambles conducts investor and analyst briefings as a part of its investor relations programme. No new materials or price sensitive information is provided at those briefings unless it has been previously or is simultaneously released to the market. Brambles posts all presentation materials on and - Brambles website contains further information about Brambles and its activities, including copies of recent interim and annual reports and recordings and slides of recent presentations to analysts. The Continuous Disclosure & Communications Policy takes into account the matters listed in Box 5.1 of the CGPR. A copy can be found at Commentary on financial results The Audit Committee Charter requires the Committee to review the clarity of financial reports. Brambles Annual Report Page 27

28 CORPORATE GOVERNANCE STATEMENT CONTINUED A review of operations and activities for the Year is included on pages 2 to 13. Brambles makes presentations, which are reviewed and approved by the Board in accordance with the Company s continuous disclosure procedures, of the full and half-year results to the investment community immediately after the public release of those results. Brambles webcasts these presentations live and posts copies of the associated presentation materials on Eliminating surprise on termination entitlements Details of the termination entitlements of Brambles Chief Executive Officer, Chief Financial Officer and other Key Management Personnel are disclosed on pages 39 and 40 of the Directors Report Remuneration Report. PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS Shareholders play an important role in the governance of Brambles by electing the Board, whose task it is to govern on their behalf. The Chairman regularly meets major investors to understand their issues and concerns and discuss particular matters relating to Brambles governance and strategy. The Chief Executive Officer, Chief Financial Officer and other senior executives regularly meet investors and other market participants to understand their issues and concerns and discuss Company performance and strategy. No new material or price sensitive information is provided at such meetings. Other Non-executive Directors may attend meetings with major investors if requested. The Chairman reports to the Board on the matters discussed at meetings with major investors and copies of relevant correspondence are included in the Board papers. Executive management provides information on shareholder activity and trading to the Board, along with shareholder feedback and copies of analysts reports. 6.1 ESTABLISH A COMMUNICATIONS POLICY As disclosed in section 5.1, the Board has adopted a Continuous Disclosure & Communications Policy, which outlines Brambles commitment to communicating effectively with shareholders and encouraging shareholder participation in shareholder meetings. A copy can be found at Electronic communication Brambles takes all of the measures outlined in Box 6.1 of the CGPR to make effective use of electronic communication with stakeholders. Brambles posts a copy of all announcements made to the ASX on On release, significant announcements are highlighted in the Latest News area on the home page of Presentations to investors, analysts or media during briefings and copies of speeches and presentations made by the Chairman and Chief Executive Officer at general meetings are released as regulatory announcements and posted on after release. Briefings and general meetings are also webcast live, via All of the ASX regulatory releases and notices of meetings that Brambles Limited has published since it was listed in December 2006 are available on Shareholders are encouraged to provide an address to Brambles share registry so that they can be sent an electronic notification when a communication is available on rather than a hard copy. Brambles believes shareholders benefit from electronic communication as they receive information promptly and have the convenience and security of electronic delivery. Electronic communication is also environmentally friendly and generates cost savings. Shareholders who do not specify a preferred method of communication are posted a printed notification of availability of the annual report and hard copies of all other communications. Shareholders may electronically appoint proxies and lodge proxy instructions for items of business to be considered at general meetings, or have the option of lodging direct votes Meetings AGMs provide an opportunity for the Board to communicate with investors, through presentations on Brambles businesses and current trading. Shareholders are encouraged to attend AGMs and to participate and use the opportunity to ask questions on any matter. To make better use of the limited time available, shareholders are invited to register questions and issues of concern prior to AGMs. This can be done either by completing the relevant form accompanying the notices convening the meetings or by ing Brambles at shareholderquestions@brambles.com. Answers to frequently asked questions are given during presentations to AGMs. Shareholders may also ask questions at AGMs without having registered their questions in this manner Communication with beneficial owners Beneficial owners of shares, investors or members of the public are encouraged to register for free alerts, so that they may stay up to date on major news announcements made by Brambles. There is a link to the Alerts registration area of the website on the home page of Users of the alerts service may customise the types of announcements that they receive Website As noted in sections and 6.1.3, Brambles communicates with shareholders via electronic methods, including Brambles website contains the financial results for the Year as well as more detailed information about Brambles business operations Briefings Brambles follows a calendar of regular disclosure of its financial and operational results. The calendar, which is posted on the website, includes advance notice of the dates for the release of half year and full year results, other financial information, shareholder meetings, major analyst and investor briefings and Brambles involvement in major investment conferences. Where possible, Brambles webcasts these significant briefings. When Brambles conducts analyst and investor briefings, a record of the briefings is maintained for internal use. This record includes a summary of the issues discussed, a record of those present (names or numbers where appropriate) and the time and place of the meeting. PRINCIPLE 7: RECOGNISE AND MANAGE RISK 7.1 ESTABLISH POLICIES FOR THE OVERSIGHT AND MANAGEMENT OF MATERIAL BUSINESS RISKS Risk management policies The Board is responsible for approving and reviewing the effectiveness of the Group s system of internal control and risk management. During the Year, the Board was supported in this role by management, in particular by the Chief Executive Officer, the Audit Committee (in relation to financial reporting risks) and the Group s internal audit function. To strengthen the relationship between risk management and strategic and operational planning, the Chief Executive Officer, through the ELT (see section ), has principal responsibility for risk management. The Audit Committee s responsibilities are described in section of this Statement. The Board has adopted a risk management framework, the objectives of which are as follows: - To incorporate effective risk management as part of Brambles strategic planning process; Brambles Annual Report Page 28

29 CORPORATE GOVERNANCE STATEMENT CONTINUED - To require business operating plans to address the effective management of key risks; - To develop internal audit plans to concentrate efforts on providing assurance on the viability and value of risk mitigation/management processes; - To embed a stronger risk management culture; - To improve allocation of capital to reflect business risks; - To seek competitive advantage through increased certainty of achieving agreed organisational and business objectives; and - To continue to fulfil governance requirements for risk management. Brambles Headquarters and each of its business units have a risk and control committee (RCC). The Brambles Headquarters RCC is chaired by the Chief Financial Officer and its members include key functional heads. Each RCC conducts an in-depth review of the relevant business unit s or corporate, as the case maybe, risk profile on a regular basis. The Group Presidents review the risk profile and accompanying mitigation plans of their respective business units before they are consolidated into the Group-level risk profile. The risk profiles and mitigation plans for Brambles Headquarters, the business units and the Group as a whole are evaluated by the ELT, with support from the Group Vice President, Taxation & Risk. The ELT, through the Chief Executive Officer, prepares a risk report to the Board twice yearly, which includes a review of the Group s risk profile, mitigation factors and emerging risks (see section 7.2). Legal obligations and the reasonable expectations of stakeholders, such as shareholders, customers, employees, subcontractors, suppliers and the community in general are taken into account when preparing and updating mitigation plans. 7.2 REPORTING ON EFFECTIVE MANAGEMENT OF MATERIAL BUSINESS RISKS Risk management and internal control system Management is responsible for the development, implementation and management of systems that: - Identify, assess and manage risks in an effective and efficient manner; - Enable decisions to be based on a comprehensive view of the reward-to-risk balance; - Provide greater certainty of the delivery of objectives; and - Satisfy the Group s corporate governance requirements. These systems are designed to limit the risk of failure to achieve business objectives. It must be recognised, however, that internal control and risk management systems can provide only reasonable, and not absolute, assurance against the risk of material loss. Key elements of Brambles internal control systems include: - A Code of Conduct that sets out an ethical and legal framework for all employees in the conduct of Brambles business; - Financial systems to provide timely, relevant and reliable information to management and to the Board; - Appropriate formalised delegations and limits of authority consistent with Brambles objectives; - Biannual management declarations at country, regional and global levels confirming, among other matters, the adequacy of internal control procedures, the effectiveness of risk management systems and compliance with the Code of Conduct and all regulatory and statutory requirements; - An internal audit function, described in section 7.2.2; - A risk management function; - RCCs for each of Brambles Headquarters and Brambles business units; and - Other sources of independent assurance, such as environmental audits, occupational health and safety audits and reports from the external auditors. The biannual management declarations are collected through a web-based system, to enable the questionnaires to be completed more easily and to facilitate rigorous tracking across periods. The key elements of Brambles business risk management systems during the Year are set out below: Risk control risks to the achievement of business objectives were identified through a process of examination between the ELT, Brambles risk management team, the business unit Group Presidents, RCCs and functional process owners. Key business risks were also identified and analysed during regular management reporting and discussions. The identified risks were assessed in terms of their underlying causes, business consequences, external variables, current internal control effectiveness, likelihood of occurrence, overall risk priority and risk mitigation status. The resulting net risk and control profiles were presented to the Board, together with a risk improvement program designed to increase the effectiveness of controls and manage the overall level of risk. This process formed part of the Board s annual review of the effectiveness of the risk management system and systems of internal control. Risk monitoring there was regular reporting of key risk events, such as safety incidents, litigation and serious incidents (as defined in the Code of Conduct). In addition to regular monitoring by the ELT and Brambles risk management team, risks and controls were reassessed by the RCCs on a regular basis. The outcome of those assessments and details of progress in implementing risk improvement programs were signed off by Group Presidents and reported to the Group Vice President, Taxation & Risk. In addition, a report on the effectiveness of the management of business risks was provided to the ELT and the Board. The effectiveness of specific business risk controls and risk improvement programs was also periodically reviewed by internal audit as part of the FY13 internal audit program, and the results reported to the Audit Committee (see section 7.2.2). The Board reviews the effectiveness of the internal control and risk management systems on an ongoing basis by: - Considering and approving the budget and forward plan of each business; - Reviewing detailed monthly reports on business performance and trends; - Setting limits on delegated authority; - Receiving regular reports on Brambles treasury activities, and reviewing treasury guidelines, limits and controls; - Receiving twice-yearly reports from the ELT on the effectiveness of internal control and risk management systems for Brambles material business risks, being the report required by Recommendation 7.2 of the CGPR; - Receiving twice-yearly written assurances from the Chief Executive Officer and Chief Financial Officer, as described in section 7.3; and - Receiving reports from the Audit Committee, which has a responsibility to assist the Board in reviewing internal financial controls Internal audit function The internal audit function is independent of the external auditor. Brambles internal audit function carries out risk-based audits under an annual plan approved by the Audit Committee. The internal audit team makes an independent appraisal of the adequacy and effectiveness of Brambles risk management and internal control system, to provide assurance to the Audit Committee and the Board. Brambles Annual Report Page 29

30 CORPORATE GOVERNANCE STATEMENT CONTINUED The head of internal audit has direct access to the Chairman of the Audit Committee. Both the Audit Committee and the internal audit team have unrestricted access to management and the right to seek information and explanations Risk Management Committee The roles of the Board, ELT and the RCCs in Brambles risk management framework are described in section CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER DECLARATION The Board receives written assurances from the Chief Executive Officer and Chief Financial Officer that the declaration provided under section 295A of the Corporations Act 2001 (Cth)(Act) is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. The Board received these assurances in advance of approving both the annual and interim financial statements for the Year. PRINCIPLE 8: RESPONSIBLY REMUNERATE FAIRLY AND 8.1 ESTABLISH A REMUNERATION COMMITTEE Purpose of the Remuneration Committee The objective and purpose of the Remuneration Committee is to assist the Board in establishing remuneration policies and practices which: - Enable Brambles to attract and retain executives and Directors who will create value for shareholders; - Fairly and responsibly reward executives having regard to the performance of Brambles, the performance of the executive and the general remuneration environment; and - Comply with the provisions of the ASX Listing Rules and the Act Charter The Remuneration Committee has a Charter which includes its duties and responsibilities, composition, structure, membership requirements, authority, access rights and sets out a procedure for inviting non-members to attend its meetings. A copy of the Remuneration Committee s Charter, which is reviewed annually, can be found at Responsibilities of the Remuneration Committee The Remuneration Committee discharges its responsibilities by meeting regularly throughout the year and, among other matters: - Determining and agreeing with the Board the broad policy for the remuneration of the Chairman of the Board, the Chief Executive Officer and other members of the senior executive team, and reviewing the ongoing appropriateness and relevance of the executive remuneration policy; - Determining the remuneration for the Executive Directors and the Company Secretary, reviewing the proposed remuneration for the senior executive team, ensuring that contractual terms on termination, and any payments made, are fair to the individual and Brambles, that failure is not rewarded and that the duty to mitigate loss is fully recognised, and, in determining such packages and arrangements, giving due regard to all relevant regulations and associated guidance; - Insofar as they impact on the Executive Directors and the senior executive team, approving the design of, and determining targets for, all cash-based executive incentive plans, and approving the total proposed payments from all such plans; - Keeping all equity-based plans under review in light of legislative, regulatory and market developments, determining each year whether awards will be made under such plans and whether there are exceptional circumstances which allow awards at other times, approving total proposed awards under each plan, approving awards to Executive Directors and reviewing awards made to the senior executive team; - Annually reviewing and taking account of the remuneration trends across Brambles in its main markets, reviewing and making recommendations to the Board on remuneration by gender and advising on any major changes in employee benefit structures throughout Brambles; - Reviewing the funding and performance of Brambles retirement plans and reporting to the Board; - Selecting, appointing and setting the terms of reference for external remuneration consultants who advise the Committee or Brambles in respect of the remuneration of the Executive Directors and other key management personnel as outlined in the Remuneration Report; and - Monitoring the Group s policy of equal remuneration for equal work value, regardless of gender, by receiving an annual report on remuneration by gender across the Group, and otherwise reviewing and making recommendations to the Board on remuneration by gender Remuneration policy Details of Brambles remuneration policy can be found in the Directors Report Remuneration Report on pages 33 to 35 and 44. The remuneration of the Chairman of Brambles is determined by the Remuneration Committee. The remuneration of the other Non-executive Directors is determined by the Executive Directors, following consultation with the Chairman of Brambles, with the Non-executive Directors taking no part in the discussion or decision relating to their remuneration. In setting remuneration, advice is sought from external remuneration consultants. 8.2 STRUCTURE OF THE REMUNERATION COMMITTEE The Remuneration Committee is comprised entirely of Non-executive Directors, all of whom are independent. Luke Mayhew (Committee Chairman), Tahira Hassan, Graham Kraehe and Brian Schwartz were members of the Remuneration Committee throughout the Year. Tony Froggatt retired from the Committee on 1 August 2012 due to his appointment to the Audit Committee earlier in the Year. Luke Mayhew has decided to retire as Chairman of the Remuneration Committee with effect from the end of the 2013 AGM. Tony Froggatt will replace Luke Mayhew as Chairman and, for that reason, was re-appointed to the Remuneration Committee with effect from 1 July The Remuneration Committee meets at least three times a year. Details of the number of Remuneration Committee meetings held during the Year, and attendance at those meetings, are set out in the Directors Report Other Information on page 51. The Remuneration Committee may seek input from certain members of executive management on remuneration, but no members of executive management are directly involved in deciding their own remuneration. 8.3 COMPARISON OF REMUNERATION STRUCTURES There is a clear distinction between the structure of Non-executive Directors remuneration and that of the Executive Directors and executive management. Brambles has taken account of the guidelines for executive remuneration packages in Box 8.1 of the CGPR and the guidelines for Non-executive Director remuneration in Box 8.2 of the CGPR. Further details can be found in the Directors Report Remuneration Report on pages 33 to 35 and 44. Brambles Annual Report Page 30

31 CORPORATE GOVERNANCE STATEMENT CONTINUED The following checklist summarises Brambles compliance with the CGPR and contains cross references to the sections of this Statement and to the exact location of information disclosed at Principle/Recommendation PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT Reference Recommendation 1.1 Role of the board and management Corporate Governance Statement: 1.1 Recommendation 1.2 Performance evaluation of senior executives Corporate Governance Statement: 1.2 Recommendation 1.3 Companies should provide the following information in the corporate governance statement: - an explanation of any departures from Recommendations 1.1, 1.2 or 1.3 Not applicable - whether a performance evaluation for senior executives has taken place in the reporting period and whether it was in accordance with the process disclosed A statement of matters reserved for the board, or the board charter or the statement of areas of delegated authority to senior executives should be made publicly available, ideally by posting it to the company s website in a clearly marked corporate governance section Corporate Governance Statement: See Corporate Governance, Charters & Related Documents PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE Recommendation 2.1 Independent directors Corporate Governance Statement: 2.1 Recommendation 2.2 Independent chairman Corporate Governance Statement: 2.2 Recommendation 2.3 Roles of chairman and chief executive officer Corporate Governance Statement: 2.3 Recommendation 2.4 Nomination committee Corporate Governance Statement: 2.4 Recommendation 2.5 Process for evaluating the performance of the board, its committees and directors Corporate Governance Statement: 2.5 Recommendation 2.6 Companies should provide the following information in the corporate governance statement: - the skills, experience and expertise relevant to the position of director held by each director in office at the date of the annual report - the names of the directors considered by the board to constitute independent directors and the company s materiality thresholds - the existence of any of the relationships listed in Box 2.1 and an explanation of why the board considers a director to be independent, notwithstanding the existence of those relationships - a statement as to whether there is a procedure agreed by the board for directors to take independent professional advice at the expense of the company - a statement as to the mix of skills and diversity for which the board of directors is looking to achieve in membership of the board Corporate Governance Statement: 2 and Board and Executive Leadership Team, pages 16 to the period of office held by each director in office at the date of the annual report the names of members of the nomination committee and their attendance at meetings of the committee, or where a company does not have a nomination committee, how the functions of a nomination committee are carried out - whether a performance evaluation for the board, its committees and directors has taken place in the reporting period and whether it was in accordance with the process disclosed - an explanation of any departures from Recommendations 2.1, 2.2, 2.3, 2.4, 2.5 or and Directors Report Other Information, page Not applicable The following material should be made publicly available, ideally by posting it to the company s website in a clearly marked corporate governance section: - a description of the procedure for the selection and appointment of new directors and the re-election of incumbent directors - the charter of the nomination committee or a summary of the role, rights, responsibilities and membership requirements for that committee - the board s policy for the nomination and appointment of directors See Corporate Governance, Charters & Related Documents. See Corporate Governance, Charters & Related Documents. Brambles Annual Report Page 31

32 CORPORATE GOVERNANCE STATEMENT CONTINUED Principle/Recommendation PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION-MAKING Reference Recommendation 3.1 Establish a code of conduct Corporate Governance Statement: 3.1 Recommendation 3.2 Establish a diversity policy Corporate Governance Statement: 3.2 Recommendation 3.3 Gender diversity objectives Corporate Governance Statement: 3.3 Recommendation 3.4 Gender diversity reporting Corporate Governance Statement: 3.4 Recommendation 3.5 An explanation of any departures from Recommendations 3.1, , 3.4 or 3.5 should be included in the corporate governance statement Not applicable The following material should be made publicly available, ideally by posting it to the company s website in a clearly marked corporate governance section: - any applicable code of conduct or a summary - the diversity policy or a summary of its main provisions PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING See Corporate Governance, Charters & Related Documents. Recommendation 4.1 Establish an audit committee Corporate Governance Statement: 4.1 Recommendation 4.2 Structure of the audit committee Corporate Governance Statement: 4.2 Recommendation 4.3 Audit committee charter Corporate Governance Statement: 4.3 Recommendation 4.4 Companies should provide the following information in the corporate governance statement: - the names and qualifications of those appointed to the audit committee and their attendance at meetings of the committee, or, where a company does not have an audit committee, how the functions of an audit committee are carried out - the number of meetings of the audit committee Corporate Governance Statement: and Directors Report Other Information, page an explanation of any departures from Recommendations 4.1, 4.2, 4.3 or 4.4 Not applicable The following material should be made publicly available, ideally by posting it to the company s website in a clearly marked corporate governance section: - information on procedures for the selection and appointment of the external auditor, and for the rotation of external audit engagement partners - the audit committee charter PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE Corporate Governance Statement: 4.4 and See Corporate Governance, Charters & Related Documents. Recommendation 5.1 Establish a continuous disclosure policy Corporate Governance Statement: 5.1 Recommendation 5.2 An explanation of any departures from Recommendations 5.1 or 5.2 should be included in the corporate governance statement Not applicable The policies or a summary of those policies designed to guide compliance with Listing Rule disclosure requirements should be made publicly available, ideally by posting them to the company s website in a clearly marked corporate governance section PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS See Corporate Governance, Charters & Related Documents, Brambles Code of Conduct" (which incorporates the Continuous Disclosure & Communications Policy as Schedule 3). Recommendation 6.1 Establish a communications policy Corporate Governance Statement: 6.1 Recommendation 6.2 An explanation of any departures from Recommendations 6.1 or 6.2 should be included in the corporate governance statement The company should describe how it will communicate with its shareholders publicly, ideally by posting the information on the company s website in a clearly marked corporate governance section Not applicable See Corporate Governance, Charters & Related Documents, Brambles Code of Conduct (which incorporates the Continuous Disclosure & Communications Policy as Schedule 3). Brambles Annual Report Page 32

33 CORPORATE GOVERNANCE STATEMENT CONTINUED Principle/Recommendation PRINCIPLE 7: RECOGNISE AND MANAGE RISK Reference Recommendation 7.1 Establish policies for the oversight and management of material business risks Corporate Governance Statement: 7.1 Recommendation 7.2 Reporting on effective management of material business risks Corporate Governance Statement: 7.2 Recommendation 7.3 Chief Executive Officer and Chief Financial Officer declaration Corporate Governance Statement: 7.3 Recommendation 7.4 Companies should provide the following information in the corporate governance statement: - an explanation of any departures from Recommendations 7.1, 7.2, 7.3 or 7.4 Not applicable - whether the board has received the report from management under Recommendation whether the board has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) under Recommendation 7.3 Corporate Governance Statement: 7.2 Corporate Governance Statement: 7.3 The following material should be made publicly available, ideally by posting it to the company s website in a clearly marked corporate governance section: - a summary of the company s policies on risk oversight and management of material business risks PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY See Corporate Governance, Risk Management. Recommendation 8.1 Establish a remuneration committee Corporate Governance Statement: 8.1 Recommendation 8.2 Structure of the remuneration committee Corporate Governance Statement: 8.2 Recommendation 8.3 Comparison of remuneration structures Corporate Governance Statements: 8.3 and Directors Report Remuneration Report pages 33 to 35 and 44. Recommendation 8.4 Companies should provide the following information in the corporate governance statement or a clear cross reference to the location of the material: - the names of the members of the remuneration committee and their attendance at meetings of the committee, or where a company does not have a remuneration committee, how the functions of a remuneration committee are carried out - the existence and terms of any schemes for retirement benefits, other than superannuation, for Non-executive Directors Corporate Governance Statement: 8.2 and Directors Report Other Information, page 51. Not applicable - an explanation of any departures from Recommendations 8.1, 8.2, 8.3 or 8.4 Not applicable The following material should be made publicly available, ideally by posting it to the company s website in a clearly marked corporate governance section: - the charter of the remuneration committee or a summary of the role, rights, responsibilities and membership requirements for that committee - a summary of the company s policy on prohibiting entering into transactions in associated products which limit the economic risk of participating in unvested entitlements under any equity-based remuneration schemes See Corporate Governance, Charters & Related Documents. See Corporate Governance, Charters & Related Documents, Brambles Code of Conduct (which incorporates the Securities Trading Policy as Schedule 9). Brambles Annual Report Page 33

34 DIRECTORS REPORT REMUNERATION REPORT Remuneration for senior executives in FY13 reflects another year of strong Brambles results, as shown in the table below: Financial measure FY13 result (US$M) Sales revenue 5, % Change from FY12 (constant currency) Operating Profit 1, % Profit after tax % TSR (3 years to 30 June 2013) 48.1% N/A Annual Short-Term Incentive (STI) cash awards for continuing senior executives ranged from 20% to 58% of base salary. These STI outcomes were driven by Brambles financial performance and the achievement by executives of their specific personal objectives. 65% of Long Term Incentive (LTI) awards granted in FY11 vested, triggered by Brambles performance over the past three years to FY13. Where roles remained unchanged, salary increases in the Year for the Brambles Executive Leadership Team (ELT) were between 0% and 3%. During the Year, there were changes to the ELT stemming from the retirement of CFO, Greg Hayes, the restructuring of the Pallets operating segment and the strategic review of Recall. The remuneration arrangements implemented as a result of these changes followed Brambles policy and standard practice, except in the case of the recruitment of a new Group President for Recall, Doug Pertz. Mr Pertz, an external candidate, was appointed following an extensive global recruitment exercise. Some elements of his contract are not standard as the Board was, at the time, considering a range of strategic options for Recall, including a potential demerger or an initial public offering. He was also required to forgo a substantial financial opportunity at the business he was running at the time of his recruitment by Brambles. To compensate him for this loss, his Brambles remuneration package contains a one-off share award in Recall Holdings, the company which will be listed on the ASX as a result of the proposed demerger announced on 2 July 2013, if that demerger is completed. These shares would vest in stages over the next three years, contain a performance-related element, and cannot be sold by Mr Pertz until April The relevant parts of Mr Pertz s remuneration arrangements will be subject to shareholder approval as part of the demerger process. Following a review earlier in FY13, the Board determined to nominate all Non-executive Director fees in Australian dollars. Consequently, fees for overseas-based Non-executive Directors were reset from their respective local currencies (as used previously) to Australian dollars. This change aligns Brambles with Australian market practice. Separately, the Chairman s fee and other Nonexecutive Director base fees increased by 3%, as a result of the annual fee review. Brambles has introduced Committee fees for the Audit and Remuneration Committees as well as a travel allowance, again in line with Australian market practice. We continue to try to make the Remuneration Report as easy to read as possible and still compatible with the required regulatory disclosures. This year we have included more detail on the range of issues considered by the Remuneration Committee over the year. These included the annual review of pay by gender in the major CHEP countries of operations and IFCO s operations in Europe; this, as in the previous year, indicated remuneration equity across genders. Brambles will extend the review across all its business units. The Remuneration Committee carried out its annual review of the Brambles remuneration policy and share-based incentive plans. This included reviewing the continued validity of Brambles Value Added as a key performance measure for the Company s incentive plans. The Committee concluded that the current approach continues to align the long-term interests of the Company and its shareholders with those of its executives. No changes to Brambles remuneration policy are proposed in the coming year. Targets for FY14 are demanding and it will require a strong performance to achieve similar or better levels of total remuneration than in the prior year. Luke Mayhew Non-executive Director & Chairman of the Remuneration Committee CONTENTS 1. Background 2. Remuneration Committee 3. Remuneration Policy & Structure 4. Performance of Brambles & At Risk Remuneration 5. Employee Share Plan 6. Executive Directors & Disclosable Executives 7. Non-Executive Directors Disclosures 8. Remuneration Advisors 9. Appendices 1. BACKGROUND The Remuneration Report provides information on Brambles remuneration policy, the link between that policy and the performance of Brambles, and remuneration information about Brambles Key Management Personnel. Brambles Key Management Personnel are: (a) its Non-executive Directors; (b) its Executive Directors; and (c) other Group executives who have authority and responsibility for planning, directing and controlling the activities of the Group. This has been defined as those who, for some or all of the year ended 30 June 2013 (the Year), were members of the Executive Leadership Team (ELT) of Brambles. In this report, executives coming within paragraph 1(b) and 1(c) above are called Disclosable Executives. This report includes all disclosures required by the Corporations Act 2001 (Cth) (Act), regulations made under that Act and Australian Accounting Standard AASB 124: Related Party Disclosures. The disclosures required by section 300A of the Act have been audited. Disclosures required by the Act cover both Brambles Limited and the Group. 2. REMUNERATION COMMITTEE The Remuneration Committee (the Committee) operates under delegated authority from Brambles Board. The Committee s responsibilities include: Recommending overall remuneration policy to the Board; Approving the remuneration arrangements for Disclosable Executives and the Company Secretary; and Reviewing the remuneration policy and individual arrangements for other executives. Brambles Annual Report Page 34

35 DIRECTORS REPORT REMUNERATION REPORT CONTINUED During the Year, the members of the Remuneration Committee 1 were Luke Mayhew (Committee Chairman), Graham Kraehe, Tahira Hassan and Brian Schwartz. Tony Froggatt re-joined the Committee in July 2013 and will take over the Chairmanship of the Committee after the 2013 AGM, when Mr Mayhew will retire as Committee Chairman. Other individuals are invited to attend Committee meetings as required by the Committee. This includes members of Brambles management team including the CEO, Group Senior Vice President of Human Resources, Group Company Secretary and Group Vice President of Remuneration & Benefits as well as Brambles external advisor, Ernst & Young. Details of the Committee s Charter and the rules of Brambles executive and employee share plans can be found under Charters & Related Documents in the Corporate Governance section of Brambles website. During the Year, the Committee held eight meetings. The most significant topics of discussion were as follows: Executive performance assessment, salary review and FY12 shortterm incentive outcomes; Vesting of FY10-FY12 long-term incentive plan; Approval of FY13 short-term incentive targets; Approval of FY13-FY15 long-term incentive plan targets; Approval of final terms of employment for Group President, Recall; Executive remuneration strategy review; Review of executive contracts; Review of Board Chairman s fees; Review of gender based remuneration relativities; Review of Employee Share Plan performance; Design of short-term incentive plan; Consideration of remuneration issues related to the divestment of Recall; and Annual review of the Committee s performance. 3. REMUNERATION POLICY & STRUCTURE The Board has adopted a remuneration policy for the Group which requires remuneration to be consistent with Brambles strategic business objectives, attract and retain high-calibre executives, align executive rewards with the creation of shareholder value and motivate executives to achieve challenging performance targets. During FY13, the Committee reviewed the remuneration policy against these objectives and concluded that it remained effective and appropriate. When setting and reviewing remuneration levels for Disclosable Executives, the Committee considers the experience, responsibilities and performance of the individual while also taking into account market data relevant to the individual s role and location as well as Brambles size, geographic scale and complexity. The Group s remuneration policy is to set pay around the median level of remuneration (of the peer group referred to in Section 3.1) but with upper-quartile total potential rewards for outstanding performance and proven capability. 3.1 FIXED & AT RISK REMUNERATION Remuneration is divided into those components not directly linked to performance (Fixed remuneration) and those components which are variable and directly linked to Brambles financial performance and the delivery of personal strategic objectives (At Risk remuneration). Fixed remuneration generally consists of base salary and benefits and superannuation contributions. Fixed remuneration for most Disclosable Executives increased by 0% to 3% during the Year. Brambles remuneration framework is underpinned by its banding structure. This classifies roles into specific bands, each incorporating roles which have broadly equivalent work value. Pay ranges for each band are determined under the same framework globally and are based on the local market rates for the roles falling within each band. Where benchmarking was needed, the comparative companies considered were major listed companies in the USA, Australia, UK and Germany, with sales revenue and market capitalisation between 50% and 200% of Brambles 12-month average at 30 June This approach provides a sound basis for delivering a non-discriminatory pay structure for all Group employees. Given the global scope of its operations, Brambles operates an international mobility policy, which can include the provision of housing, payment of relocation costs and other location adjustment expenses where appropriate. A significant element of Disclosable Executives total potential reward is required to be At Risk. This means an individual s maximum potential remuneration will be achieved only in circumstances where they have met challenging objectives in terms of Brambles overall financial performance, returns for all shareholders and strategic objectives. The proportion of Disclosable Executives' remuneration packages At Risk is illustrated in Section 3.3 of this Remuneration Report. Brambles At Risk remuneration is provided by way of three types of annual incentive awards: a Short Term Incentive (STI) cash award, an STI share award and a Long Term Incentive (LTI) share award. The market value at the date of grant of all STI and LTI share awards made to any person in any financial year should not normally exceed two times their base salary. The remuneration structure and the key features of Fixed and At Risk remuneration are summarised in the chart on the next page. The application of the At Risk element of remuneration is further described in in Section 4. 1 Each of the Committee members is an independent Non-executive Director (see section of the Corporate Governance Statement on page 20. Brambles Annual Report Page 35 33

36 DIRECTORS REPORT REMUNERATION REPORT CONTINUED FIXED REMUNERATION AT RISK REMUNERATION LTI SHARE AWARD Size of grant calculated as percentage of salary and based on: Fixed remuneration consists of base salary, superannuation and benefits. TSR performance against the ASX100 median-ranked company. (Vesting starts at median with full vesting for outperformance of median by 25%); and Sales revenue compound annual growth rate with BVA hurdle. Awards subject to performance testing at end of three years (see Section 4.2 for details). STI CASH AWARD Size determined by performance against Key Performance Indicators including BVA, cash flow and Strategic Personal Objectives (see Section 4.1 for details). STI SHARE AWARD Size derived from size of STI cash award. Awards vest subject to continued employment at second anniversary of grant (see Section 4.1 for details). 3.2 REMUNERATION AND THE LINK TO BUSINESS STRATEGY Brambles continues to adopt a growth strategy focussed on strengthening its global equipment pooling businesses. This strategy is underpinned by: - Business performance being focused on profitable growth, the efficient use of capital and the generation of cash; - The recruitment and retention of high-calibre executives; - The setting of goals to implement the growth strategy; and - Achieving sustainable returns for Brambles shareholders. The implementation of Brambles remuneration policy, which is summarised in the chart above, is directly linked to the above strategy and objectives in the following manner. - Business performance profitable growth is emphasized by both the use of Brambles Value Added (BVA) as a key performance condition in STI cash awards and the use of compound annual growth rate (CAGR) sales targets with BVA hurdles as one of the two key performance conditions which must be satisfied for LTI share awards to vest. The generation of cash and the effective use of capital are reinforced through the setting of cash flow targets for STI cash awards. - High-calibre executives remuneration packages for executives are designed to be competitive to assist Brambles in attracting talented managers and to reward strong performance. The award of a significant proportion of executives STI awards as shares which do not vest for two years helps retain key executives. - Strategic goals each year, a part of an executive s STI cash award is subject to the achievement of specific personal objectives. These include objectives focussed on the delivery of Brambles strategy such as safety performance, development of new markets, customer satisfaction, product and service innovation, employee engagement, productivity improvements and development of future potential senior executives. - Sustainable shareholder returns each of the above three elements support the delivery of sustainable returns to shareholders. In addition, there is a direct alignment of executive rewards to the creation of shareholder value through the use of relative total shareholder return (TSR) performance conditions, to which the vesting of half of all LTI share awards granted since FY10 are subject. Full details of the link between senior executives remuneration and Brambles performance in terms of financial outcome, creation of shareholder value and the delivery of the Group s strategy are set out in Section 4. Definitions of the BVA, TSR and CAGR measurements and the methods by which they are calculated are included in the Glossary on pages 125 and REMUNERATION MIX FOR DISCLOSABLE EXECUTIVES Brambles executive remuneration mix is heavily tied to performance. At Risk remuneration represents 71% to 76% of the Disclosable Executives maximum potential remuneration. The graph on page 35 illustrates the level of actual remuneration received by Disclosable Executives compared with their maximum potential remuneration. Maximum potential remuneration is the Disclosable Executive s base salary plus his or her STI cash award and STI share award assuming maximum level of performance (see Section 4.1) and full vesting of all LTI share awards. The Actual column of that graph comprises: - Base salary this is fixed remuneration for FY13; - STI cash this represents the STI cash award received in respect to FY13 performance (see Section 4.1); - STI shares this is the STI share award earned in respect to FY13 performance but the vesting of which is deferred until FY15 (see Section 4.1); and - LTI shares this shows the proportion of the FY10 to FY13 LTI share awards which will vest in FY14 (see Section 4.2). The Potential column represents the maximum value of each element of remuneration that could have been received in each case by the individual Disclosable Executive for FY13. As a result of the simplification of the Pallets operating segment, which took effect on 1 March 2013, Mr Mackie was assessed against the previous CHEP Americas business unit for the first eight months of the year and the Pallets segment for the balance of the year. Under the terms of his employment contract (see Section 6.3), Mr Pertz was not entitled to participate in Brambles incentive arrangements referred to in sections 3 and 4 in FY13. Brambles Annual Report Page 36

37 DIRECTORS REPORT REMUNERATION REPO ORT - CONTINUED 2 2 Doug Pertz was not entitled to participate in Brambles incentive program. 3.4 SECURITIES TRADING POLICY & INCENTIVE AWARDS Brambles' Securities Trading Policy applies to awards granted under the incentive arrangements described above. That policy prohibits designated persons (which include all the Disclosable Executives) from acquiring financial products or entering into arrangements which have the effect of limiting exposure to the risk of price movements of Brambles securities. It is a term of o senior executives employment contracts that they are required too comply with all Brambles policies (including the Securities Trading Policy). Management declarations are obtained twice yearly and includee a statement that executives have complied with all a policies. Sections 9.2 and 9.3 summarise all the incentivee plans under which awards to Disclosable Executives are still to vestt or be exercised. 4. PERFORMANCE OF BRAMBLES & AT RISK REMUNERATIONN Brambles remuneration policy is directly linked to its performance in terms of financial outcome, the creation of shareholder wealth and delivery of the Group s strategy. This link iss achieved in the following ways: - By placing a significant portion of executives remuneration At Risk; - By selecting appropriate Key Performance Indicators (KPIs) for annual STI cash awards and performance conditions for LTI share awards; and - By requiring those KPIs or performance conditions to be met in order for the At Risk component of remuneration to be awarded or to vest. The relationship between Brambles remuneration policy and its performance over the Year and the previous four financial years is set out in Section 4.2. The tables in Section show the level of vesting of LTI share awards triggered by performance over those periods. 4.1 STI KEY PERFORMANCE INDICATORS As outlined in Section 3.1, Disclosable Executives have the opportunity to receive annual STI cash and share awards a based on performance againstt KPIs. A significant proportionn of overall STI incentives are STI share awards, which vest two years after the award is made. Disclosable Executives KPIs comprise both financial and non-financial KPIs. FINANCIAL KPIS Financial KPIs are chosen to link executive rewards with the financial performance of the Group, the pursuit of profitable growth and the efficient usee of capital andd generation of cash. STI financial KPIs chosen for the Year were BVA and Cash Flow from Operations plus (for the CEO and CFO) profit afterr tax (PAT). For the Group President, Pallets and the former Group Presidents, Recall and CHEP EMEA & Asia-Pacific, KPIss were Brambles and their respective business units BVA and Cash Flow from Operations. The Group President, Containers had the same KPIs except sales growth was substituted for that business unit s BVA. A focus on BVA helps ensure efficient use of capital within Brambles. PAT captures interest and tax charges not n directly incorporated in BVA. Cash Flow from Operations iss used as a measure to ensure a strong focus on the generation of cash. The key levels of performance possible against each of the financial KPIs relevant to the STI awards for the Year were: : - Threshold (the minimum necessary to qualify for the awards); - Target (where thee performance targets have been met); and - Maximum (where the t targets have been significantly exceeded, and the related rewards have reached their upper limit). The STI incentives for Group President of RPCs, Karl Pohler, are based on the IFCO STI plan in placee at the time Brambles acquired IFCO. This provides him with the opportunity to obtain an STI cash award based on performance against the followingg KPIs: IFCO s EBITDA (70% of totall STI opportunity); and IFCO s free cash flow (30% of the total STII opportunity). Mr Pohler does not participate in Brambles STI share award incentives. Brambles Annual Report Page 37

38 DIRECTORS REPORT REMUNERATION REPORT CONTINUED Doug Pertz did not participate in Brambles STI cash, STI share award or LTI share award incentives for the Year. The actual levels of performance achieved for the Year against the financial KPIs are summarised in the following table. PERFORMANCE AGAINST FINANCIAL KPIs IN 2013 KPIs 3 Brambles BVA Brambles PAT Level of performance achieved during the Year 4 Between Target and Maximum Between Target and Maximum - Customer satisfaction and retention are mainly measured using the Net Promoter Score (NPS) 6 system. NPS targets are set for each year and performance is measured against the achievement of those targets. - People and talent management metrics relate to the development of future leaders in Brambles as well as succession planning for critical roles. The following table summarises the components and weighting of KPIs for STI cash awards for Disclosable Executives other than Group President of RPCs, Karl Pohler, and Group President of Recall, Doug Pertz, from 1 April Brambles Cash Flow Pallets BVA Pallets Cash Flow Containers Sales Containers Cash Flow CHEP Americas BVA CHEP Americas Cash Flow CHEP EMEA & Asia-Pacific BVA CHEP EMEA & Asia-Pacific Cash Flow Recall BVA Recall Cash Flow IFCO EBITDA IFCO Cash Flow Achieved Target Between Target and Maximum Achieved Target Between Threshold and Target Achieved Target Between Threshold and Target Achieved mid-year target but below Threshold at Year-end Between Target and Maximum Achieved Target Below Threshold Achieved Target Between Threshold and Target Achieved mid-year target but below Threshold at Year-end Disclosable Executive Group BVA Financial KPIs Business Unit BVA/Sales Group PAT Group Cash Flow Business Unit Cash Flow Non- Financial KPIs CEO, CFO 30% - 20% 20% - 30% Group Presidents: Pallets, Containers, Recall and CHEP EMEA & Asia- Pacific Other Disclosable Executives 25% 25% % 30% 50% % - 30% NON-FINANCIAL KPIS Non-financial KPIs are set to link Disclosable Executives performance to Brambles overall strategic objectives. These include personal strategic objectives in areas such as safety, business strategy, new markets, customer satisfaction and retention, and people and talent management. - Brambles safety is measured by Brambles Injury Frequency Rate (BIFR) 5. BIFR targets for each business unit and the Group as a whole are set each Year and incorporated into Disclosable Executives non-financial KPIs. Brambles regards the safety of its people as a major priority and, as the leaders of the company, the ELT has Group-wide oversight of the Zero Harm policy. If a fatality occurs, then the CEO, Group Senior Vice President of Human Resources and relevant Group President(s) will have any incentive related to BIFR outcomes reduced to zero. - Business strategy and growth objectives include the implementation of clearly specified strategic initiatives allocated to individual ELT members, for example new business acquisitions. 3 Definitions of BVA, PAT, Cash flow from operations and EBITDA measurements and the methods by which they are calculated are included in the Glossary on pages 125 and Financial targets set for the forthcoming financial year under Brambles incentive plans will not constitute profit forecasts and the Board is conscious that their publication may therefore be misleading. Accordingly Brambles does not publish in advance the coming year s financial targets for incentive purposes. 5 A definition of BIFR is included in the Glossary on page 125 and reporting of the Group s BIFR performance is included in the Zero Harm section of the Operational & Financial Review on page 5. Details of the STI cash award payable to Disclosable Executives and the STI cash award forfeited, as a percentage of the maximum potential STI cash award in respect to performance during the Year, are shown for each Disclosable Executive in the following table. ACTUAL STI CASH PAYABLE & FORFEITED FOR YEAR ENDED 30 JUNE 2013 Name DISCLOSABLE EXECUTIVES % of maximum STI cash payable % of maximum STI cash forfeited T Gorman 64% 36% Z Todorcevski 49% 51% J Holley 66% 34% P Mackie 58% 42% D Pertz N/A N/A K Pohler 7 8% 92% J Rabbino 56% 44% N Smith 62% 38% 6 An explanation of the Group s use of NPS is included in the Sustainability Review to be published on Brambles website by end September Karl Pohler s remuneration mix and bonus calculations reflect his existing incentive arrangements from IFCO. Brambles Annual Report Page 38

39 DIRECTORS REPORT REMUNERATION REPORT CONTINUED Name % of maximum STI cash payable FORMER DISCLOSABLE EXECUTIVES % of maximum STI cash forfeited G Hayes 44% 56% E Potts 32% 68% R Westerbos 67% 33% 4.2 LTI SHARE AWARDS As outlined in Section 3.1, Disclosable Executives have the opportunity to receive equity awards in the form of LTI share awards. Vesting only occurs three years from the date of award and is subject to satisfaction of performance conditions (which are explained in Section below) over a three-year performance period (Performance Period). If awards vest, they are exercisable for up to six years from the date of grant. The table in Section illustrates the relationship between Brambles remuneration policy and performance, showing the level of vesting of LTI share awards during the Year and the previous four financial years. Details of the LTI share awards granted to Disclosable Executives and the performance hurdles which apply to each of the awards are set out in Sections 9.2 and 9.3. LTI share awards only vest to the extent that performance conditions are met. The awards are governed by the Brambles 2006 Performance Share Plan (2006 Share Plan) rules, which have been approved by shareholders. Any Board discretion, such as vesting in the event of a change of control, is clearly prescribed under the 2006 Share Plan rules. Under the good leaver provisions, there is no accelerated vesting in the case of terminations and all unvested LTI share awards are forfeited in the case of resignations or terminations for cause LTI SHARE AWARD PERFORMANCE CONDITIONS LTI performance conditions are set both to align executive remuneration with the creation of shareholder value and to support Brambles financial objective of creating and sustaining profitable growth. To allow a greater focus on profitable growth while retaining a shareholder value metric, LTI share awards have two sets of performance conditions, each with equal weighting. Creation of Shareholder Value: Half of the LTI share awards are measured by the following relative TSR condition: 40% of LTI share awards will vest if the Company's relative TSR performance over the Performance Period equals the TSR of the median ranked ASX100 company; 100% will vest for out-performance of the TSR of the median-ranked ASX100 company by 25% over the Performance Period; and if Brambles TSR performance is between these two levels, vesting will be on a pro rata straight line basis. TSR measures the returns that a company has provided for its shareholders, reflecting share price movements and reinvestment of dividends over a specific period. A relative TSR performance condition helps ensure that value is only delivered to participants if the investment return actually received by Brambles shareholders is sufficiently high relative to the return they could have received by investing in a portfolio of alternative stocks over the same period of time. Profitable growth: Half of the LTI share award incentivises both long-term sales revenue and BVA growth. Vesting is based on achievement of sales revenue targets with three-year performance targets set on a CAGR basis. The sales revenue growth targets are underpinned by BVA hurdles. This is designed to drive profitable business growth, to ensure quality of earnings is maintained at a strong level, and to deliver increased shareholder value. Both sales revenue CAGR and BVA are measured in constant currency. Each year, a sales revenue CAGR/BVA matrix is set by the Committee and approved by the Board for each LTI share award. The matrix is published in the subsequent Remuneration Report. This allows the Board to set targets for each LTI share award which reward strong performance in the light of the prevailing and forecast economic and trading conditions. The table below is the sales revenue CAGR/BVA matrix for LTI share awards made during the Year. It should be noted that the LTI Performance Matrix shown encompasses the entire Brambles Group, including Recall. On 2 July 2013, Brambles announced its intention to demerge Recall by listing a new holding company, Recall Holdings, on the ASX. If the Recall demerger is approved by shareholders, the matrix will be restated to exclude Recall from the performance targets. The Company s 2014 Remuneration Report will explain the change to the matrix and how the final determination of performance will be made. As a policy principle, the Company takes into account major acquisitions or divestments in determining the final outcome. Where there are acquisitions or divestments that are not material to the overall outcome, these are excluded from any performance assessment. LTI PERFORMANCE MATRIX FOR FY13 TO FY15 Vesting % Cumulative three-year BVA at fixed 30 June 2012 FX rates (US$M) Sales revenue CAGR* 950 1,150 1,350 4% 20% 40% 5% 20% 40% 60% 6% 40% 60% 80% 7% 60% 80% 100% 8% 80% 100% 100% 9% 100% 100% 100% *Three-year CAGR over base year The sales revenue CAGR provides for half point vesting in between the percentages shown if the sales revenue outcome is more than half way between the vesting levels. For example, a sales revenue CAGR of 6.7% and a BVA outcome of US$1,000 million would provide vesting of 50%. There is no half point vesting scale in between the respective BVA hurdles PERFORMANCE OF LTI SHARE AWARDS UNDER THE 2006 PERFORMANCE SHARE PLAN The following tables detail actual performance against the applicable performance condition for LTI share awards made during the five financial years indicated. Brambles Annual Report Page 39 37

40 DIRECTORS REPORT REMUNERATION REPORT CONTINUED As outlined in LTI share awards have two sets of performance conditions, each with equal weighting. The tables below show the level of performance and vesting for each of the two components, which each individually comprise half of the LTI Award. Level of vesting of LTI share awards based on TSR performance Period Prior to 30 June 2012 Period to 30 June 2013 Awards made during financial year 8 Performance condition Start of Performance Period Ranking (Outperformance of median company s TSR return 9 (%) Vesting triggered (% of original award) Vesting triggered (% of original award) FY09 Relative TSR 1 July % LTI awards N/A FY10 Relative TSR 1 July % LTI TSR Award N/A FY11 Relative TSR 1 July N/A 100.0% LTI TSR Awards The following table provides similar details for awards which have yet to be tested. Period to 30 June 2013 Awards made Performance condition Start of Performance during 8 Period Out-performance of median company s TSR return 9 (%) Vesting if current performance is maintained until earliest testing date (% of original award) FY12 Relative TSR 1 July % LTI TSR awards FY13 Relative TSR 1 July % LTI TSR awards Level of vesting of LTI share awards based on sales revenue CAGR and BVA performance The following table provides details for the actual performance of LTI share awards against the applicable sales revenue CAGR/BVA matrix for those awards granted in 2010 and 2011 and which have been tested. Awards made Performance condition Start of Performance during 8 Period Prior Period and Period to 30 June 2012 vesting triggered (% of original award) Period to 30 June 2013 Vesting triggered (% of original award) FY09 Sales revenue CAGR/BVA 1 July % LTI awards N/A FY10 Sales revenue CAGR/BVA 1 July % LTI sales revenue CAGR/BVA awards N/A FY11 Sales revenue CAGR/BVA 1 July 2010 N/A 30% of LTI sales revenue CAGR/BVA awards The following table provides similar details for LTI share awards the performance period of which has not yet expired. Awards made Performance condition Start of Performance during 8 Period Period to 30 June 2013 vesting if current performance is maintained until earliest testing date (% of original award) FY12 Sales revenue CAGR/BVA 1 July % LTI sales revenue CAGR/BVA awards FY13 Sales revenue CAGR/BVA 1 July % LTI sales revenue CAGR/BVA awards Total level of vesting of LTI share awards The combined vesting of the two LTI components for 2012 and 2013 is shown below. Awards made during Start of Performance Period End of Performance Period Total vesting (TSR and sales revenue CAGR/BVA combined) FY09 1 July June % FY10 1 July June % FY11 1 July June % 8 These performance share rights were granted under the 2006 Share Plan. Rights under this Plan vest on the third anniversary of their grant date. 50% of the award will vest subject to meeting a relative TSR performance condition. The balance of the award will vest subject to three-year sales revenue CAGR and BVA performance. The vesting matrix for this component of the award made during the 2013 financial year is detailed in Section Percentage out-performance of the median company s TSR return against the S&P/ASX 100 Index. Brambles Annual Report Page 40

41 DIRECTORS REPORT REMUNERATION REPORT CONTINUED 5. EMPLOYEE SHARE PLAN At the 2008 AGM, shareholders gave approval to an all employee share plan (MyShare), which was implemented in January Since the initial launch, more than 3,500 Brambles employees from approximately 40 countries have elected to participate in MyShare. MyShare employee participants as a group represent a group approximately equivalent in size to our 25 th largest registered shareholder. The number of shares purchased by employees (Acquired Shares) as at 30 June 2013 was 929,613, excluding shares received under the MyShare Dividend Share Program (Dividend Shares). At the end of March 2013, Brambles issued 500,941 shares to employees, being a matching number of shares (Matching Shares) to those purchased and held by employees for the two-year period. During the Year, employees in Pallecon, acquired in January 2013, were given their first opportunity to enrol in MyShare. This program has been very well received by the Pallecon employees and their participation rate was 46%. In addition, during the Year, due to a relaxation of restrictions on capital transfers out of China, CHEP China was able to convert its MyShare plan from a phantom scheme to a standard share plan. CHEP China employees MyShare participation increased significantly to 57% in FY13 from 43% in FY12. In August 2012, Argentina s government enacted tighter foreign exchange controls. Since then, Brambles Argentina-based businesses have been unable to fund additional share purchases for their MyShare plans. Disclosable Executives are eligible to participate in MyShare. Acquired Shares, Dividend Shares and vested Matching Shares obtained by Disclosable Executives through MyShare are included in Section 6.6. Matching Shares allocated, but not yet vested, are shown in Sections 6.5 and EXECUTIVE DIRECTORS & DISCLOSABLE EXECUTIVES 6.1 EXECUTIVE DIRECTOR CHANGES During the Year, Greg Hayes retired as CFO and as an Executive Director. He retired from the Brambles Board effective 1 October 2012 but remained a Brambles employee until 1 March OTHER DISCLOSABLE EXECUTIVE CHANGES Zlatko Todorcevski commenced as Chief Financial Officer on 8 October On 1 March 2013, Dolph Westerbos ceased employment following the restructure of the Pallets operating segment. Following the appointment of Doug Pertz as Group President of Recall, Elton Potts ceased employment on 25 April SERVICE CONTRACTS Disclosable Executives are on continuing contracts which may be terminated without cause by the employer giving 12 months notice or by the employee giving six months notice, with payments in lieu of notice calculated by reference to annual base salary. These standard service contracts states that any termination payments made would be reduced by any value to be received under any new employment. Other than Peter Mackie 10, executives remunerated on a base salary approach receive pension contributions of 15% of base salary. All terminations during the Year were in accordance with the terms and conditions of individual employees contracts. Under his employment contract, Zlatko Todorcevski, who commenced employment on 8 October 2013, received a sign on grant of 214, 213 Brambles share rights. This was an amount equal 10 Mr Mackie received employer superannuation (pension) contributions of 21% of base salary for income up to 153,700 and 15% of base salary for any amount above 153,700. in value to the share rights he forfeited on leaving his former employer. These rights vest in five tranches between January 2013 and January During the Year, 77,906 of those rights vested and are reflected in the table in Section 6.6. Vesting of these share rights is subject to his continuing employment with Brambles. On 28 March 2013, Brambles announced the appointment of Doug Pertz as Group President of Recall and he commenced that role on 1 April His employment contract provides for him to be remunerated on a base salary approach. At the time of Mr Pertz s recruitment, Brambles was carrying out a strategic review of Recall, which included a number of different divestment options including a possible demerger or IPO. Therefore, in searching for a candidate for the role of Recall Group President, priority was given to identifying individuals who had the skills and experience to lead Recall as a standalone business headquartered in the USA and, if Brambles so decided, to manage it through a divestment or public listing. After a comprehensive search, Mr Pertz was selected as the most suitable candidate. Because Brambles was still conducting the Recall strategic review at the time it was recruiting a new Group President, parts of Mr Pertz s service contract are not standard. It contains provisions relating to his remuneration which are contingent on the occurrence and, if applicable, the manner in which any Recall divestment would take place. In addition, Mr Pertz s contract includes a one-off grant of share awards in Recall Holdings to the value of US$6 million if it were to be demerged, to recognise the significant opportunity he forfeited in leaving his previous employer to join Recall. The Board considered that the one-off nature of these arrangements were necessary and appropriate. On 2 July 2013, Brambles announced it would divest Recall by way of a demerger and listing on the ASX. The elements of Mr Pertz s remuneration which apply if the demerger takes place are as follows: One off Recall share award: Subject to Mr Pertz remaining employed by Recall, he is entitled to a one-off share award comprising a grant of share rights in Recall Holdings to the value of US$6 million (Recall Award). The amount and nature of the Recall Award was determined to compensate him for the value of the equity in his then employer that he would forfeit by joining Recall, to provide an incentive for him to remain at Recall through and after a demerger and to align this part of his package with the creation of shareholder value in Recall Holdings. Any shares issued to Mr Pertz pursuant to the Recall Award will be held in escrow and may not, except in the specific termination situations described below, be sold or otherwise disposed of for a period of 48 months (i.e. 1 April 2017) from the date of commencement of his employment with Recall. The grant of the Recall Award is subject to any required shareholder approval. Each share right the subject of the Recall Award will, upon vesting, entitle Mr Pertz to one share in Recall Holdings. The vesting schedule for the Recall Award is over a twoyear period, as follows: On completion of the demerger: 33.33%; 12 months after completion of the demerger if he remains employed by Recall Holdings: 16.67%; and a further 16.67% subject to the satisfaction of performance conditions to be determined by the Board of Recall Holdings; and 24 months after completion of the demerger if he remains employed by Recall Holdings: 16.67%; and a further 16.67% subject to the satisfaction of performance conditions to be determined by the Board of Recall Holdings. The number of share rights the subject of the Recall Award will be US$6 million divided by the volume-weighted average price of shares in Recall Holdings for the five trading days after (and excluding) the first day on which Recall Holdings shares are quoted on the ASX. Brambles Annual Report Page 41 39

42 DIRECTORS REPORT REMUNERATION REPORT CONTINUED Recall Holdings incentive schemes: subject to receiving any necessary shareholder approvals, Mr Pertz will be eligible to participate in any cash bonus scheme, share-based incentive plans or other incentive arrangements that Recall Holdings may implement after the demerger is completed. Because of the uncertainty surrounding the future of Recall at the time Mr Pertz commenced employment with Brambles, under his employment contract he was not entitled to participate in Brambles incentive arrangements referred to in Sections 3 and 4 in FY13 and beyond. In lieu of this, Mr Pertz will be entitled to a cash bonus of up to US$1 million relating to the period 1 April 2013 to 31 December 2013, subject to the achievement of the following objectives: Financial targets: Recall EBITDA; and Recall Cash Flow; Personal and strategic objectives: Zero Harm for Recall; and Retaining key customers, and driving the achievement of a successful separation of Recall. This cash bonus will be payable no later than 15 March The termination provisions of Mr Pertz s employment contract are more complex than usual because Brambles had not completed the strategic review of Recall at the time he was recruited. The following is a summary of his termination provisions: As with other Disclosable Executives, his contract may be terminated by his employer for good cause or by Mr Pertz giving six months notice. If his employment is terminated in these circumstances, Mr Pertz will retain any vested portion of the Recall Award, any unvested portion of the Recall Award will be foregone and the 48 month escrow period referred to above will continue to apply. As with other Disclosable Executives, his contract may be terminated without cause by the employer giving 12 months notice. Mr Pertz may also terminate his employment contract for good reason. The circumstances which comprise good reason are either: a material reduction in his base salary; a material diminution in his duties or reporting relationships; a requirement that he relocates to a principal place of business outside the USA; or, if applicable, his not being appointed (or, if required by law, nominated periodically) to the Board of any Recall listed entity. If Mr Pertz s employment is terminated in either of these circumstances, Mr Pertz will retain any vested portion of the Recall Award, any unvested portion of the Recall Award will vest and the 48 month escrow period referred to above will no longer apply. He would also be entitled to a pro rata payment of the US$1 million bonus relating to the period up to 31 December 2013 referred to above, subject to satisfaction of the performance conditions to which that bonus is subject. Mr Pertz s employment contract provides that any termination benefits described above are, where applicable, subject to receiving any necessary shareholder approval under Part 2D.2 of the Act. This approval will be sought at the Brambles general meeting to approve the Brambles capital reduction by which the demerger will be implemented and which is expected to be held in early December CONTRACT TERMS FOR DISCLOSABLE EXECUTIVES Name and role(s) Base salary at 30 June 2013 unless indicated Disclosable Executives: T Gorman CEO Z Todorcevski CFO From 8 October 2012 J Holley Group Chief Information Officer P Mackie Group President, Pallets K Pohler Group President, RPCs D Pertz Group President & Chief Operating Officer, Recall From 1 April 2013 J Rabbino Group President, Containers N Smith Group Senior Vice President, Human Resources Former Disclosable Executives: G Hayes 11 CFO until 7 October 2012, ceased employment on 1 March 2013 E Potts Group President & Chief Operating Officer, Recall until 25 April 2013 R Westerbos Group President, Pallets, EMEA & Asia-Pacific until 30 June 2013 A$2,060,000 A$1,050,000 US$435, , ,000 US$900,000 US$535,000 A$635,000 A$1,550,000 US$583, , Mr Hayes retired from the Group on 1 March A summary of his retirement entitlements was announced to the ASX on 4 June 2012 and is included in Section 6.4. Brambles Annual Report Page 42

43 DIRECTORS REPORT REMUNERATION REPORT CONTINUED 6.4 TOTAL REMUNERATION AND BENEFITS FOR THE YEAR The table below provides a summary of the actual remuneration, before equity, received or receivable by the Disclosable Executives for the Year, together with prior year comparatives. Income derived from the vesting of shares during the year has been included below as Actual share income. The value shown is the market value at the time the income became available to the executive. These awards were granted in prior financial years. The values shown relate to STI and LTI share awards made in (Theoretical accounting values for unvested share awards are shown in Section 9.4; those values are a statutory disclosure requirement. Unvested share awards may result in Actual share income in future years and, if so, the income will be reported in the table below in the Annual Report for the relevant year). The purpose of this table is to enable shareholders to understand the actual remuneration received by Disclosable Executives. (US$'000) Name Year Cash/ salary/ fees EXECUTIVE DIRECTORS Short-term employee benefits Cash bonus Nonmonetary benefits 12 Postemployment benefits Superannuation Other Termination/ sign-on payments/ retirement benefits Other Total before equity Actual share income STI/LTI awards T Gorman 13 FY13 2,322 1, ,730 1,101 4,831 CURRENT DISCLOSABLE EXECUTIVES FY12 2,430 1, , ,451 Z Todorcevski 13 FY , ,474 FY J Holley 14 FY ,102 FY P Mackie 13 FY , ,401 FY , ,473 D Pertz 47 FY FY K Pohler 13 FY13 1, ,368-1,368 FY12 1, ,185-1,185 J Rabbino 14 FY FY N Smith 13 FY , ,466 FORMER DISCLOSABLE EXECUTIVES FY , ,342 G Hayes 13 FY13 1, ,838 1,281 3,119 FY12 1, ,531-2,531 E Potts FY , ,949 FY ,108 R Westerbos 13 FY ,592-1,592 FY ,352-1,352 Totals FY13 9, , ,602 4,186 20,788 FY12 8,361 2, ,883 1,432 14,315 Total 12 Non-monetary benefits include car parking, personal/spouse travel, club membership, motor vehicles, relocation and storage costs and fringe benefits tax. 13 The year-on-year comparison of remuneration is affected by the movement of exchange rates from A$1=US$ and EUR=US$ for 2012 to A$1=US$1.0212, EUR=US$ and GBP=US$ respectively for These executives were appointed to their current role during the 2012 Year, as such the 2012 comparator represents part year only. 47 The US$333,000 cash bonus for Mr Pertz in the above table is the current estimate accrued for service performed during the period 1 April 2013 to 30 June The full details of Mr Pertz s cash bonus entitlement, including the objectives to which it is subject, are referred to in section 6.3. This amount was not actually paid to Mr Pertz in FY13 and will only become payable in FY14 subject to achievement of the objectives referred to in that section. Brambles Annual Report Page 43

44 DIRECTORS REPORT REMUNERATION REPORT CONTINUED 6.5 EQUITY-BASED AWARDS The following table shows details of equity-based awards made to the Disclosable Executives during the Year. STI and LTI share awards were made under the 2006 Share Plan, the terms and conditions of which are set out in Sections 9.2 and 9.3 (see plan numbers 16 to 26). Matching Awards were made under MyShare, the terms and conditions of which are also set out in Sections 9.2 and 9.3 (plan numbers 43 to 55). Equity-based awards Value at grant Name Type of aw ard Number US$' DISCLOSABLE EX ECUTIVES T Gorman STI 150,039 1,059 LTI 385,412 2,719 MyShare Matching Total 536,092 3,783 Z Todorcevski STI 214,213 1,562 LTI 191,900 1,399 MyShare Matching Total 406,298 2,962 J Holley STI 22, LTI 60, MyShare Matching Total 83, P Mackie STI 52, LTI 118, MyShare Matching Total 171,843 1,213 D Pertz STI - - LTI - - Total - - K Pohler STI - - LTI - - Total - - J Rabbino STI - - LTI 97, MyShare Matching 19 - Total 97, N Smith STI 37, LTI 91, MyShare Matching Total 129, FORMER DISCLOSABLE EX ECUTIVES G Hayes STI - - LTI - - Total - - E Potts STI 111, LTI 105, MyShare Matching Total 216,635 1,455 R Westerbos STI 34, LTI 105, Total 140, SHAREHOLDINGS The following table shows details of Brambles Limited ordinary shares in which the Disclosable Executives held relevant interests, being issued shares held by them and their related parties. Under recently updated guidelines, members of Brambles ELT are encouraged, over the five-year period commencing from the date they joined the ELT, to achieve and maintain a shareholding equal to 100% of their base salary before tax. In circumstances where executives wish to sell shares, they will require the approval of the Chairman (in the case of the CEO) or the CEO (in the case of all other ELT members) Ordinary shares Balance at the start of the Year DISCLOSABLE EX ECUTIVES Changes during the Year Balance at the end of the Y ear 18 T Gorman ,782 80, ,148 Z Todorcevski ,091 78,591 J Holley ,596 24,825 P Mackie 20 2,165 12,890 15,055 D Pertz K Pohler J Rabbino N Smith ,132 71,359 75,491 FORMER DISCLOSABLE EX ECUTIVES G Hayes E Potts ,059 (19,577) 73,482 R Westerbos 101,495 (101,495) - 15 Of which 500 shares were held by Zlatko Todorcevski and Robert Todorcevski, 77,906 shares were held by Tentwentyfive Pty Ltd and 185 are held by AET Structured Finance Services Pty Limited. 16 Of which 70,000 held by Lisa Smith. 17 The total value of the relevant equity award(s) is valued as at the date of grant using the methodology set out in Section 9.1. The minimum possible future value of all awards yet to vest is zero, and is based on the performance/service conditions not being met. The maximum possible future value of awards yet to vest is equal to the value at grant. 18 On 31 July 2013, the following Disclosable Executives acquired ordinary shares under MyShare, which are held by AET Structured Finance Services Pty Limited: Tom Gorman (45), Zlatko Todorcevski (45), Jean Holley (46), Peter Mackie (47), Jason Rabbino (4) and Nick Smith (46). 19 Of which AET Structured Finance Services Pty Limited holds 933 shares for Tom Gorman, 230 shares for Zlatko Todorcevski and 5,537 shares for Nick Smith. 20 All of these shares are held by AET Structured Finance Services Pty Limited. 21 Balance at the end of the Year is at cessation of employment for Greg Hayes, who ceased employment on 1 March 2013; Elton Potts, who ceased employment on 25 April Brambles Annual Report Page 44

45 DIRECTORS REPORT REMUNERATION REPORT CONTINUED 6.7 INTERESTS IN SHARE RIGHTS The following table shows details of rights over Brambles Limited ordinary shares in which the Disclosable Executives held relevant interests: share rights, being awards made on 24 November 2010, 31 March, 2011, 6 September 2011, 16 July 2012, 25 September 2012 and 12 October 2012 under the 2006 Share Plan; and Matching Awards, being conditional rights awarded during the Year under MyShare. 25,26 Balance at the start of the Year Granted during the Year Exerc ised during the Y ear 23 Value at Name Number Number 25 Value at grant Number exercise Lapsed during the Year Balance at the end of the Y ear 24 Vested and exerciseable at the end of the Year Value at Number lapse 26 Number Number US$'000 US$'000 US$'000 DISCLOSABLE EXECUTIVES T Gorman 1,316, ,092 3, ,310 1, ,735 1,129 1,525,383 - Z Todorcevski - 406,298 2,962 77, ,392 - J Holley 125,859 83, , ,427 - P Mackie 375, ,843 1,213 25, , ,483 - D Pertz K Pohler 251, ,637 - J Rabbino - 97, ,419 - N Smith 376, , , , ,068 - FORMER DISCLOSABLE EX ECUTIVES G Hayes 1,159, ,739 1, ,861 2, ,220 - E Potts 392, ,635 1,455 50, , ,522 - R Westerbos 264, , , , Of the awards detailed in Section 9.3, the following plan numbers are relevant to Disclosable Executives: Tom Gorman, Peter Mackie and Nick Smith (2 to 9, 13 to 15, 17 to 19 and 27 to 55); Zlatko Todorcevski (20 to 26 and 51 to 55); Jean Holley (11 to12, 14 to 16 and 17 to 19); Karl Pohler (10); Jason Rabbino (18 to 19 and 51 to 55); Greg Hayes (3 to 9, 13 and 15); Elton Potts (2 to 9, 13 to 18 and 27 to 55); Dolph Westerbos (7 to 9, 13 to 15 and 17 to 19). Lapses occurred for Tom Gorman, Peter Mackie and Nick Smith (3 and 4); Greg Hayes (3 to 4 and 8 to 9); Elton Potts (3 to 4, 8 to 9 and 14 to 15) and Dolph Westerbos (14 to 15 and 18 to 19). Exercises occurred for Tom Gorman, Peter Mackie and Nick Smith (2 to 4 and 27 to 38); Zlatko Todorcevski (20 to 21); Jean Holley (11); Greg Hayes (3 to 4); and Elton Potts (2 to 4 and 27 to 52). 23 Of the rights exercised during the Year, no monies were paid or payable on exercise. The shares issued on exercise of share rights are fully paid up. All of the share rights exercised during the Year vested during the Year. 24 On 31 July 2013, the following Disclosable Executives received Matching Awards under MyShare: Tom Gorman (45), Zlatko Todorcevski (45), Jean Holley (46), Peter Mackie (47), Nick Smith (46) and Jason Rabbino (4). 25 During the Year, 3,468,198 performance share rights were granted under the 2006 Share Plan, of which 535,451 were granted to Tom Gorman and 406,113 were granted to Zlatko Todorcevski. 763,015 Matching Awards were granted under MyShare during the Year, of which 641 were granted to Tom Gorman. Approval for these issues of securities was obtained under ASX Listing Rule at the AGM held on 10 November Lapse in this context means that the award was forfeited due to either the applicable service or performance conditions not being met. Brambles Annual Report Page 45

46 DIRECTORS REPORT REMUNERATION REPORT CONTINUED 7. NON-EXECUTIVE DIRECTORS DISCLOSURES 7.1 NON-EXECUTIVE DIRECTORS REMUNERATION POLICY NON-EXECUTIVE DIRECTORS REMUNERATION POLICY The Chairman s fees are determined by the Remuneration Committee and the other Non-executive Directors fees are determined by the Chairman and Executive Directors. In setting the fees, advice is sought from external remuneration advisors on the appropriate level of fees, taking into account the responsibilities of Directors in dealing with the complexity and global nature of Brambles affairs and the level of fees paid to Non-executive Directors in comparable companies. Over the past three years Brambles has set Non-executive Directors fees at the relevant market rate for the geography in which the Non-executive Director resided. In 2013, this approach was reviewed by Brambles external advisors and, following an extensive benchmarking exercise, a decision was made to align Brambles practice with that of the Australian market. Fees for all Non-executive Directors are now paid in Australian dollars. Brambles base fees for Non-executive Directors are set with reference to the peer group referred to in Section 3.1, which is consistent with Brambles policy on executive pay. A review of Non-executive Director and Board Chairman fees was undertaken in 2013 to ensure the fees remained in line with the Australian market practice, resulting in an increase of 3%. A key outcome of the review was a gap between Brambles practices in relation to the payment of Committee membership fees. Market practice in Australia showed that the majority of companies pay Committee membership fees. Effective 1 January 2013, Brambles commenced paying a A$10,000 Committee membership fee per annum. This only applies to the Audit and Remuneration Committees. These fees do not apply to the Board Chairman. To reflect the increasing complexity and workload of the Chairman of both the Audit and Remuneration Committees, the fees for the Committee Chairs have been increased as follows: Audit Committee Chair from A$36,000 to A$50,000; and Remuneration Committee Chair from A$33,000 to A$40,000. In addition, Brambles reviewed the travel allowances for Nonexecutive Directors and introduced a flat fee of A$5,000 per longhaul trip for all Non-executive Directors (including the Chairman). In summary, the 2013 review established the following fee structure: Chairman: A$605,000 Non-executive Directors: A$193,000 Supplement for Audit Committee Chairman: A$50,000 Supplement for Remuneration Committee Chairman: A$40,000 Supplement for Audit and Remuneration Committee membership: A$10,000 Travel allowance per long-haul flight: A$5,000 The next fee review will be undertaken during January NON-EXECUTIVE DIRECTORS APPOINTMENT LETTERS Directors are appointed for an unspecified term but are subject to election by shareholders at the first AGM after their initial appointment by the Board. The Corporate Governance Statement contains details of the process for appointing and re-electing Non-executive Directors and of the years in which the Non-executive Directors are next due for re-election by shareholders (see pages 20 and 22). Letters of appointment for the Non-executive Directors, which are contracts for service but not contracts of employment, have been put in place. These letters confirm that the Non-executive Directors have no right to compensation on the termination of their appointment for any reason, other than for unpaid fees and expenses for the period actually served. The Non-executive Directors do not participate in Brambles STI, LTI or MyShare plans. 7.3 NON-EXECUTIVE DIRECTORS REMUNERATION FOR THE YEAR The fees and other benefits provided to Non-executive Directors during the Year and during the prior year are set out in the table below in US dollars. The full names of the Non-executive Directors and the dates of any changes in Non-executive Directors are shown in the Directors Report Other Information. Non-executive Directors do not receive any share-based payment. Any contributions to personal superannuation or pension funds on behalf of the Non-executive Directors are deducted from their overall fee entitlements. Brambles Annual Report Page 46

47 DIRECTORS REPORT REMUNERATION REPORT CONTINUED TABLE 7.3 NON-EXECUTIVE DIRECTORS REMUNERATION FOR THE YEAR (US$'000) Short-term employee benefits Post-employment benefits Name Year Directors fees Superannuation Other 27 Total 28 CURRENT NON-EXECUTIVE DIRECTORS D Duncan FY FY A Froggatt 29 FY FY D Gosnell FY FY T Hassan FY FY S Johns 29 FY FY C Kay 29 FY FY G Kraehe AO 29 FY FY L Mayhew 29 FY FY B Schwartz AM 29 FY FY Totals FY13 2, ,496 FY12 1, , NON-EXECUTIVE DIRECTORS SHAREHOLDINGS As a guideline, Non-executive Directors are encouraged to hold shares in Brambles equal to their annual fees after tax within three years of their appointment. The following table contains details of Brambles Limited ordinary shares in which the Non-executive Directors held relevant interests, being issued shares held by them and their related parties. Balance at Ordinary shares start of Year CURRENT NON-EXECUTIVE DIRECTORS Changes during Year Balance at end of Year D Duncan A Froggatt 24,890 (10,000) 14, D Gosnell 14,450 8,460 22, T Hassan 8,000-8, S Johns 47,500-47, C Kay 14,877-14, G Kraehe AO 63,776 3,189 66, L Mayhew 16,500-16, B Schwartz AM 13,029 8,652 21, Other includes personal/spouse travel, meals and fringe benefits tax. 28 None of the Non-executive Directors received rights/awards over Brambles Limited shares during the Year, so there are no relevant share-based payment amounts for disclosure. 29 The year-on-year comparison of remuneration is affected by the movement of exchange rates from A$1=US$ and GBP1=US$ for 2012 to A$1=US$ and GBP1=US$ for Of which 7,000 shares were held by Christine Joanne Froggatt and 7,890 shares were held by Anthony Grant Froggatt. 31 Held by Charles Stanley & Co Australia in the name of Susan Gosnell. 32 Held by RBC Dexia Custodian on behalf of Tahira Hassan. 33 Of which 27,500 shares were held by Canzak Pty Ltd, and 20,000 shares were held by Caran Pty Limited. 34 Of which 9,977 held by the Carolyn Kay Superannuation Fund. 35 Held by Invia Custodians as trustee for the Graham John Kraehe Self Managed Superannuation Fund. 36 Held by HSBC Bank of Australia Limited on behalf of Luke Mayhew. 37 Held by Brian Martin Schwartz & Arlene Schwartz as trustee for the Schwartz Superannuation Fund. Brambles Annual Report Page 47

48 DIRECTORS REPORT REMUNERATION REPORT CONTINUED 8. REMUNERATION ADVISOR The Committee have appointed Ernst & Young as Brambles remuneration advisor to assist the Company with Non-executive Director and executive remuneration matters. In performing its role, the Remuneration Committee directly request and receive information and advice from Ernst & Young. During the Year, no remuneration recommendations, as defined by the Act (Recommendations), were provided by Ernst & Young. Ernst & Young also provided taxation, internal audit, option valuation and project-related services together with general employee advice services to Brambles during the Year. These services did not include a Recommendation. During the Year, the Committee reviewed the arrangement relating to the engagement of its independent, external advisor. As a result, Brambles has made arrangements to ensure that the making of any Recommendations would be free from undue influence by the Disclosable Executives to whom a Recommendation may relate. The engagement letter entered into by Brambles and Ernst & Young contains an agreed set of engagement protocols which apply to the provision of Recommendations to Brambles. These include: - An agreed set of pre-approved services Ernst & Young may provide Brambles management, which excluded Recommendations; Any requests to Ernst & Young from Brambles management which might constitute a Recommendation are to be referred by Ernst & Young to the Committee for its consideration and direction; Ernst & Young is not permitted to provide Recommendations to Brambles management; and If Ernst & Young provides a Recommendation, it would include with it a declaration that it has not been unduly influenced by the Disclosable Executive subject to the Recommendation; - Representatives of Ernst & Young attend all Committee meetings; - Except for CEO Tom Gorman and Group Senior Vice President of Human Resources, Nick Smith, the Disclosable Executives do not attend Committee meetings; - Mr Gorman and Mr Smith do not attend those parts of any Committee meeting when their remuneration is being reviewed or discussed; and - The Committee meets with Ernst & Young without management being present, during which time any issues or questions relating to Disclosable Executives remuneration which are not appropriate to discuss with management present, may be discussed. 9. APPENDICES 9.1 BASIS OF VALUATION OF EQUITY-BASED AWARDS Unless otherwise specified, the fair values of the options and share rights included in the tables in this report have been estimated by Ernst & Young Transaction Advisory Services in accordance with the requirements of AASB 2: Share-based Payments using a binomial model. Assumptions used in the evaluations are outlined in Note 28, pages 95 and 96 of the financial statements. 9.2 SUMMARY OF 2006 PLANS The table below contains details of the 2006 Share Plan and MyShare Plan under which former or current Disclosable Executives have unvested and/or unexercised awards which could affect remuneration in this or future reporting periods. The plans in bold relate to the Plans and targets which were relevant to vesting during the Year. Plan 2006 Share Plan (STI) 2006 Share Plan (TSR LTI) 2006 Share Plan (FY11-FY13 BVA LTI) 2006 Share Plan (FY12-FY14 BVA LTI) 2006 Share Plan (FY13-FY15 BVA LTI) MyShare Nature of award Share rights Share rights Share rights Share rights Share rights Matching Awards Size of award Up to 100% of size of STI cash award Vesting condition Time only % of salary/tfr Time and relative TSR hurdle % of salary/tfr Time and sales revenue CAGR and BVA performance % of salary/tfr Time and sales revenue CAGR and BVA performance % of salary/tfr Time and sales revenue CAGR and BVA performance 1:1 Matching Awards for every Acquired Share purchased Time and retention of Acquired Shares Vesting schedule 100% vesting based on continuous employment. 40% vesting if TSR is equal to the median ranked company. 100% vesting if 25% above the median ranked company. 30% vesting occurs if CAGR is 5% and BVA is US$900M over three-year period. 100% vesting occurs if CAGR is 7% and BVA is US$1,300M over threeyear period. 20% vesting occurs if CAGR is 6% and BVA is US$850M over three-year period. 100% vesting occurs if CAGR is 8% and BVA is US$1,250M over three year period. 20% vesting occurs if CAGR is 5% and BVA is US$950M over three-year period. 100% vesting occurs if CAGR is 7% and BVA is US$1,350M over threeyear period. N/A Performance/ vesting period Two years Three years Three years Three years Three years Two years from first acquisition Life of award Maximum six years Maximum six years Maximum six years Maximum six years Maximum six years Automatic exercise on second anniversary of first acquisition Brambles Annual Report Page 48 46

49 DIRECTORS REPORT REMUNERATION REPORT CONTINUED 9.3 SHARE RIGHTS The terms and conditions of each grant of share rights affecting remuneration in this or future reporting periods are outlined in the table below. Share rights granted under the plans do not have an exercise price and carry no dividend or voting rights. Plan Plan number Grant date Expiry date Value at grant Status/vesting date 2006 Share Plans 1 29 August August 2013 A$ % vested at 29 August November November A$ % vested at 25 November November November A$ % exercisable from 25 November 2012, remainder lapsed 4 25 November November A$ % exercisable from 25 November 2012, remainder lapsed 5 12 April April 2016 A$ November April April 2016 A$ November November November A$ November November November A$ November November November A$ November March June 2017 A$ June September August A$ % vested at 1 July September August A$ July September September A$ September September September A$ September September September A$ September July September A$ September September September A$ September September September A$ September September September A$ September October October 2018 A$ % vested at 31 January October October 2018 A$ % vested at 31 May October October 2018 A$ January October October 2018 A$ May October October 2018 A$ January October September 2018 A$ September October September 2018 A$ September STI awards vest on the third anniversary of their grant date, subject to continued employment. 39 Awards granted to Elton Potts, Jean Holley, Peter Mackie and Jason Rabbino expire three years earlier than the date shown, or immediately after vesting, if earlier. 40 These LTI awards vest on the third anniversary of their grant date, subject to continued employment and meeting a TSR performance condition. 41 These LTI awards vest on the third anniversary of their grant date, subject to continuing employment and meeting a sales revenue CAGR and BVA performance condition. 42 STI awards vest on the second anniversary of their grant date, subject to continued employment. Brambles Annual Report Page 49

50 DIRECTORS REPORT REMUNERATION REPORT CONTINUED Plan Plan number Grant date Expiry date Value at grant Status/vesting date MyShare March April 2013 A$ % vested on 31 March April April 2013 A$ % vested on 31 March May April 2013 A$ % vested on 31 March June April 2013 A$ % vested on 31 March July April 2013 A$ % vested on 31 March August April 2013 A$ % vested on 31 March September April 2013 A$ % vested on 31 March October April 2013 A$ % vested on 31 March November April 2013 A$ % vested on 31 March December April 2013 A$ % vested on 31 March January April 2013 A$ % vested on 31 March February April 2013 A$ % vested on 31 March March April 2014 A$ March April April 2014 A$ March May April 2014 A$ March June April 2014 A$ March July April 2014 A$ March August April 2014 A$ March September April 2014 A$ March October April 2014 A$ March November April 2014 A$ March December April 2014 A$ March January April 2014 A$ March February April 2014 A$ March March April 2015 A$ March April April 2015 A$ March May April 2015 A$ March June April 2015 A$ March July April 2015 A$ March These Matching Awards granted under MyShare vest on 31 March 2013, subject to continuing employment and the retention of the associated Acquired Shares. On vesting they are automatically exercised. 44 These Matching Awards granted under MyShare vest on 31 March 2014, subject to continuing employment and the retention of the associated Acquired Shares. On vesting they are automatically exercised. 45 These Matching Awards granted under MyShare vest on 31 March 2015, subject to continuing employment and the retention of the associated Acquired Shares. On vesting they are automatically exercised. Brambles Annual Report Page 50

51 DIRECTORS REPORT REMUNERATION REPORT CONTINUED 9.4 SHARE BASED PAYMENTS FUTURE POTENTIAL The table below provides annual accounting values for shares granted during years which have been amortised over three years. These share awards are subject to conditions set out in section 9.2. Remuneration will normally not be received as a result of the underlying share awards vesting until the conditions have been met. 46 (US$'000) Share based payment Total before Share of FY13 Name Y ear equity Aw ards total remuneration Total EX ECUTIVE DIRECTORS T Gorman ,730 1,624 30% 5, ,790 1,546 29% 5,336 CURRENT DISCLOSABLE EX ECUTIVES Z Todorcevski ,800 1,054 37% 2, J Holley % 1, % 1,003 P Mackie , % 1, , % 1,771 D Pertz ,134 66% 1, K Pohler , % 1, , % 1,650 J Rabbino % N Smith , % 1, , % 1,484 FORMER DISCLOSABLE EX ECUTIVES G Hayes , % 2, ,531 1,306 34% 3,837 E Potts ,575 1,207 43% 2, % 1,310 R Westerbos , % 2, , % 1,653 Totals ,602 8,899-25, ,883 5,225-18,108 Luke Mayhew Non-executive Director & Chairman of the Remuneration Committee 22 August This represents the Recall Award described in Section 6.3. Brambles Annual Report Page 51

52 DIRECTORS REPORT OTHER INFORMATION The information presented in this Report relates to the consolidated entity, the Brambles Group, consisting of Brambles Limited and the entities it controlled at the end of, or during the year ended 30 June 2013 (Year). PRINCIPAL ACTIVITIES The principal activities of the Group during the Year were the provision of pooling solutions services and information management services. Brambles is a leading global provider of these services. The Group s pooling solutions services comprised three operating business segments: Pallets, RPCs and Containers. The Pallets business, carried out under the name CHEP, focusses on the outsourced management of returnable pallets, which it issues, collects and reissues through a network of service centres in multiple countries. Manufacturers, producers, distributors and retailers use these pallets and containers to transport their products safely and efficiently through the supply chain. In addition, Pallets provides supply chain optimisation and transport management services and, in the USA provides a national network of pallet management services, to sort, repair and reissue pallets. The RPC business, carried out under the name IFCO in Europe, North and South America and CHEP in Australia, New Zealand and South Africa, focusses on the outsourced management of reusable plastic containers globally, which are used primarily to transport fresh produce from producers to grocery retailers. The Containers business provides intermediate bulk, automotive and chemical and catalyst containers to its customers. It also operates an airline container pooling and repair business and a non-flight critical aviation equipment maintenance and repair business called CHEP Aerospace. The information management services business, carried out under the name of Recall, is a global business and comprises the management of information, providing secure storage, digitisation, retrieval and destruction of information in multiple media formats. There were no significant changes in the nature of the Group s principal activities during the Year. REVIEW OF OPERATIONS AND RESULTS A review of the Group s operations and a review of the results of those operations are given in the Letter from the Chairman & the CEO on page 1, the Operational & Financial Review on pages 2 to 13. Information about the financial position of the Group is included in the Operational & Financial Review on pages 2 to 13 and in the Five- Year Financial Performance Summary on page 124. SIGNIFICANT CHANGES IN STATE OF AFFAIRS On 3 January 2013, Brambles announced the completed acquisition of Pallecon, a leading provider of Intermediate Bulk Container (IBC) solutions in Europe and the Asia-Pacific, for 135 million (US$177 million). Pallecon operates mainly in Western Europe, Australia and New Zealand, providing IBCs primarily for the transportation of liquids in the food, cosmetic and chemical industries. It has been operating for more than 30 years and operates a pool of approximately 180,000 IBCs. Other than this, there were no significant changes to the state of affairs of the Group for the Year. MATTERS SINCE THE END OF THE FINANCIAL YEAR On 2 July 2013, Brambles announced the intention to demerge its information management business, Recall, by listing a new holding company, Recall Holdings Limited, on the ASX. Through the demerger, eligible Brambles shareholders will receive new shares in Recall Holdings Limited proportionate to their existing Brambles shareholding, while retaining their existing Brambles shares. Brambles will not retain any shareholding in Recall Holdings following the demerger. Brambles expects to distribute a scheme book to shareholders in October 2013 containing: a recommendation from the Brambles Board in respect of the demerger; information about the mechanics of the demerger; information about the operating and financial profiles of both Recall Holdings Limited and the post-demerger Brambles; an independent expert s report; and additional information for shareholders. Brambles intends to convene a meeting in December 2013 for shareholders to vote on the demerger proposal. Subject to the outcome of this shareholder vote and the satisfaction of other conditions (including receiving the relevant court and regulatory approvals) the final separation of Recall from Brambles and the listing of Recall Holdings Limited is expected to occur shortly thereafter. Other than this, the Directors are not aware of any matter or circumstance that has arisen since 30 June 2013 up to the date of this Report that has significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in future financial years. BUSINESS STRATEGIES AND PROSPECTS FOR FUTURE FINANCIAL YEARS The business strategies and prospects for future financial years, together with likely developments in the operations of the Group in future financial years and the expected results of those operations known at the date of this Report, are set out in in the Letter from the Chairman and CEO at page 1 and in the Operational & Financial Review on pages 2 to 13. Further information in relation to such matters has not been included because the Directors believe it would be likely to result in unreasonable prejudice to the Group. DIVIDENDS The Directors have declared a final dividend for the Year of 13.5 Australian cents per share, which will be 30% franked. The dividend will be paid on 10 October 2013 to shareholders on the register on 13 September On 11 April 2013, an interim dividend for the Year was paid, which was 13.5 Australian cents per share and 30% franked. On 11 October 2012, a final dividend for the year ended 30 June 2012 was paid, which was 13.0 Australian cents per share and 30% franked. The unfranked component of each dividend paid during the Year was conduit foreign income. This means that no Australian dividend withholding tax was payable on the dividends that Brambles paid to non-resident shareholders. Brambles Annual Report Page 52

53 DIRECTORS REPORT OTHER INFORMATION CONTINUED DIRECTORS The name of each person who was a Director of Brambles Limited at any time during, or since the end of the Year, and the period for which they served as a Director during the Year, is set out below. The qualifications, experience and special responsibilities for Directors are set out on pages 16 to 17. Douglas Gordon Duncan 1 July 2012 to date Anthony Grant Froggatt 1 July 2012 to date Thomas Joseph Gorman 1 July 2012 to date David Peter Gosnell 1 July 2012 to date Tahira Hassan 1 July 2012 to date Gregory John Hayes 1 July 2012 to 1 October 2012 Stephen Paul Johns 1 July 2012 to date Sarah Carolyn Hailes Kay 1 July 2012 to date Graham John Kraehe AO 1 July 2012 to date Christopher Luke Mayhew 1 July 2012 to date SECRETARY Details of the qualifications and the experience of the Company Secretary of Brambles Limited are as follows: Robert Nies Gerrard joined Brambles in 2003 as Senior Counsel and was appointed Group Company Secretary in February Prior to joining Brambles, he was General Counsel to, and Company Secretary of, Roc Oil Company Limited; Group Legal Manager, Cairn Energy plc; General Counsel to, and Company Secretary of, Command Petroleum Limited; and a solicitor with Allen Allen & Hemsley. He holds a Masters of Law (LLM) from the University of Sydney and Bachelor of Science (BSc) and Bachelor of Law (LLB) degrees from the University of New South Wales. He is a Solicitor of the Supreme Court of New South Wales. INDEMNITIES Indemnities provided to Directors and officers in accordance with the constitution of Brambles Limited are detailed in Note 36 on page 118. Insurance policies are in place to cover Directors and executive officers, however, the terms of the policies prohibit disclosure of the details of the insurance cover and the premiums paid. Brian Martin Schwartz AM 1 July 2012 to date DIRECTORS MEETINGS Details of the Board committee memberships are given in the Corporate Governance Statement on pages 21, 24 and 28. The following table shows the actual Board and committee meetings held during the Year and the number attended by each Director or committee member. Directors Board meetings Regular Special Special Committees Audit Committee meetings Remuneration Committee meetings Nominations Committee meetings (a) (b) (a) (b) (a) (b) (a) (b) (a) (b) (a) (b) D G Duncan A G Froggatt T J Gorman D P Gosnell (c) T Hassan G J Hayes S P Johns (c) S C H Kay G J Kraehe AO C L Mayhew B M Schwartz AM (a) The number of meetings attended during the period the Director was a member of the Board or relevant committee which the Director was eligible to attend. (b) The number of meetings held while the Director was a member of the Board or relevant committee which the Director was eligible to attend. (c) The meetings each of these Directors did not attend were one-hour telephone conference meetings. Brambles Annual Report Page 53

54 DIRECTORS REPORT OTHER INFORMATION CONTINUED DIRECTORS DIRECTORSHIPS OF OTHER LISTED COMPANIES The following lists the directorships held by the Directors in listed companies (other than Brambles Limited) since 30 June Director Listed company Period directorship held D G Duncan J.B. Hunt Transport Services, Inc to current Benchmark Electronics, Inc to current A G Froggatt AXA Asia Pacific Holdings Limited 2008 to 2011 Billabong International Limited Coca-Cola Amatil Limited 2008 to current 2010 to current T J Gorman IFCO Systems NV (de-listed in October 2011) 2011 to current D P Gosnell None - T Hassan None - G J Hayes None - S P Johns Leighton Holdings Limited 2009 to March 2013 Spark Infrastructure Group 2005 to 2011 Westfield Group: Westfield Holdings Limited 1985 to May 2013 Westfield America Trust (director of responsible entity, Westfield America Management Limited) 1996 to May 2013 Westfield Trust and Carindale Property Trust (director of responsible entity, Westfield Management Limited) 1985 to May 2013 S C H Kay Commonwealth Bank of Australia 2003 to current G J Kraehe AO Bluescope Steel Limited 2002 to current Djerriwarrh Investments Limited 2002 to current C L Mayhew WH Smith plc 2006 to 2010 InterContinental Hotels Group plc B M Schwartz AM Insurance Australia Group Limited IAG Finance (New Zealand) Limited Westfield Group: Westfield Holdings Limited 2011 to current 2005 to current 2008 to current 2009 to current Westfield America Trust (director of responsible entity, Westfield America Management Limited) 2009 to current Westfield Trust and Carindale Property Trust (director of responsible entity, Westfield 2009 to current Management Limited) ENVIRONMENT Brambles Environmental Policy is set by the Board. It applies in all countries where Brambles operates. The Environmental Policy provides that Brambles will act with integrity and respect for the community and the environment and be committed to sound environmental practice in its daily operations. It is a minimum requirement that all Brambles operations comply with all relevant environmental laws and regulations. Additionally, employees are expected to care for the environment by adopting a specified set of environmental principles. Every business unit must ensure that those principles are adhered to, including in countries that may not yet have enacted laws for the protection of the environment. Brambles has set environmental performance targets. Reporting of performance against those targets is contained in Brambles Sustainability Review which will be available on the Brambles website in September A copy of the complete Environmental Policy is set out in Brambles Code of Conduct, which is available at OCCUPATIONAL HEALTH AND SAFETY The Board is responsible for setting Brambles Health and Safety Policy, which states that Brambles is to provide and maintain a healthy and safe working environment and to prevent injury, illness or impairment to the health of employees, contractors, customers or the public. Brambles has adopted a Zero Harm Charter, which sets out the vision, values and behaviours and commitment required to work safely and ensure human rights and environmental compliance is provided to all employees and, together with the complete Health and Safety Policy, is on the Brambles website The Chief Executive Officer together with the Group Presidents of the Pallets, Containers, RPC and Recall business segments are responsible for policy implementation and safety performance. Health and safety performance indicators measure compliance with corporate objectives and milestones, allow assessment of progress and comparison with industry benchmarks and provide incentives for improvement. Reporting on health and safety performance will be shown in the Sustainability Review, which will be available on Brambles website in September Brambles Annual Report Page 54

55 DIRECTORS REPORT OTHER INFORMATION CONTINUED EMPLOYEES The Sustainability Review, available on Brambles website in September 2013, will contain details of Brambles performance as an employer. INNOVATION, RESEARCH AND DEVELOPMENT Innovation, whether of an incremental or step-change nature, is integral to Brambles growth strategy. Brambles is focusing on three key areas: innovating to address customers current and future needs; accelerating tomorrow s growth opportunities; and fostering and driving a culture of innovation. In 2011, Brambles launched an Innovation Fund, which has reviewed and funded a significant number of early-stage new business ideas. Brambles carries out research and development activities in relation to both its Pooled Solutions and Recall businesses. These activities comprise: - Continuously testing its pallets, containers and other platforms to make them more durable, sustainable and safer for use in the supply chain; - Enhancing existing, and developing new designs of pallets, containers and other supply chain platforms, for both new and existing markets; - Improving pallet and container repair processes and equipment; - Testing and developing unique identifier technologies, including radio frequency identification; and - Research into and development of new service offerings, information technology and software solutions, and information and document management processes. ENVIRONMENTAL REGULATION Except as set out below, the Group s operations in Australia are not subject to any particular and significant environmental regulation under a law of the Commonwealth or a State or Territory. The operations of the Group in Australia involve the use or development of land, the use of transportation equipment and the transport of goods. These operations may be subject to State, Territory or Local government environmental and town planning regulations, or require a licence, consent or approval from Commonwealth, State or Territory regulatory bodies. There were no material breaches of environmental statutory requirements and no material prosecutions during the Year. Brambles businesses comply with all relevant environmental laws and regulations and none were involved in any material environmental prosecutions during the Year. INTERESTS IN SECURITIES Pages 42, 43 and 45 of the Directors Report - Remuneration Report include details of the relevant interests of Directors, and other Group Executives whose details are required to be disclosed, in shares and other securities of Brambles Limited. SHARE CAPITAL, OPTIONS AND SHARE RIGHTS Details of the changes in the issued share capital of Brambles Limited and share rights and MyShare matching share rights outstanding over Brambles Limited ordinary shares at the Year-end are given in Notes 27 and 28 on pages 94 to 96. Other than the share rights in Recall Holdings granted to Mr Doug Pertz and which are described in Section 6.3 of the Directors Report Remuneration Report, no options, share rights or MyShare matching share rights over the shares of Brambles Limited s controlled entities were granted during or since the end of the Year to the date of this Report. Since the end of the Year to the date of this Report, the following grants, exercises and forfeits in options, performance share rights and MyShare matching share rights over Brambles Limited ordinary shares have taken place, broken down by reference to the plan numbers shown on pages 47 to 48 of the Remuneration Report: grants under the 2012 MyShare offer (plan numbers 39-50) and 63,316 under the 2013 MyShare offer (plan numbers 51-55); - 80,172 exercises resulting in the issue of fully paid ordinary shares: 8,176 under the 2012 MyShare offer (plan numbers 39 to 50); 2,713 under the 2013 MyShare offer (plan numbers 51 to 55); 25,202 under plan 1; 4,867 under plan 2; 32,305 under plan 12; 4,474 under plan 3 and 2,435 under plan 4; and - 1,137,657 lapses: 12,346 under the 2012 MyShare offer (plan numbers 39 to 50); 5,249 under the 2013 MyShare offer (plan numbers 51 to 55); 941,465 under plan 9; 8,015 under plan 6; 18,019 under plan 15; 35,305 under plan 19; 78,953 under plan 14; 35,305 under plan 18; and 3,000 under plan 17. SHARE BUY-BACKS No ordinary shares were bought-back and cancelled during the Year. There is no current on-market buy-back in operation. RISK MANAGEMENT A discussion of Brambles risk profile, management and mitigation of risks can be found in the Operational & Financial Review on page 7 and the Corporate Governance Statement on pages 26 to 28. TREASURY POLICIES A discussion of the implementation of treasury policies and mitigation of treasury risks can be found in the Operational & Financial Review on pages 3 and 4. NON-AUDIT SERVICES AND AUDITOR INDEPENDENCE The amount of US$911,000 was paid or is payable to PricewaterhouseCoopers, the Group s auditors, for non-audit services provided during the Year by them (or another person or firm on their behalf). These services primarily related to financial due diligence for the demerger of Recall, treasury consulting services, compliance tracking system, regulatory reporting and tax consulting advice. The Audit Committee has reviewed the provision of non-audit services by PricewaterhouseCoopers and its related practices and provided the Directors with formal written advice of a resolution passed by the Audit Committee. Consistent with this advice, the Directors are satisfied that the provision of non-audit services by PricewaterhouseCoopers and its related practices did not compromise the auditor independence requirements of the Act for the following reasons: the nature of the non-audit services provided during the Year; the quantum of non-audit fees compared to overall audit fees; and the pre-approval, monitoring and ongoing review requirements under the Audit Committee Charter and the Charter of Audit Independence in relation to non-audit work. The auditors have also provided the Audit Committee with a letter confirming that, in their professional judgement, as at 15 August 2013 they have maintained their independence in accordance with their firm s requirements, with the provisions of APES 110 Code of Ethics for Professional Accountants and the applicable provisions of the Act. On the same basis, they also confirmed that the objectivity of the audit engagement partners and the audit staff is not impaired. AUDITORS INDEPENDENCE DECLARATION A copy of the auditors independence declaration as required under section 307C of the Act is set out on page 123. ANNUAL GENERAL MEETING The AGM will be held at 2.00pm (AEDT) on 22 October 2013 at The Wesley Theatre, Wesley Conference Centre, 220 Pitt Street, Sydney NSW This Directors Report is made in accordance with a resolution of the Board. G J Kraehe AO Chairman 22 August 2013 T J Gorman CEO Brambles Annual Report Page 55

56 SHAREHOLDER INFORMATION DIRECTORS G J Kraehe AO (Non-executive Chairman) D G Duncan (Non-executive Director) A G Froggatt (Non-executive Director) T J Gorman (Chief Executive Officer) D P Gosnell (Non-executive Director) T Hassan (Non-executive Director) S P Johns (Non-executive Director) S C H Kay (Non-executive Director) C L Mayhew (Non-executive Director) B M Schwartz AM (Non-executive Director) COMPANY SECRETARY R N Gerrard STOCK EXCHANGE LISTING Brambles ordinary shares are listed on the Australian Securities Exchange and are traded under the stock code BXB. UNCERTIFICATED FORMS OF SHAREHOLDING Brambles ordinary shares are held in uncertificated form. There are two types of uncertificated holdings: Issuer Sponsored Holdings: This type of holding is recorded on a subregister of the Brambles share register, maintained by Brambles. If your holding is recorded on the issuer sponsored subregister, you will be allocated a Securityholder Reference Number or SRN, which is a unique number used to identify your holding of ordinary shares in Brambles. Broker Sponsored Holdings: This type of holding is recorded on the main Brambles share register. Shareholders who are sponsored by an ASX market participant broker will be allocated a Holder Identification Number or HIN. One HIN can relate to an investor s shareholdings in multiple companies. For example, a shareholder with a portfolio of holdings which are managed by a broker would have the same HIN for each shareholding. SHARE SALE FACILITY Ordinarily, Issuer Sponsored shareholders must establish a relationship with a broker in order to sell their shares. However, Brambles share registry provides Issuer Sponsored shareholders with an alternative to traditional share sale services. If you would like to take advantage of this service to sell your entire Brambles shareholding, please contact Link Market Services at the address set out in Contact Information on the back cover of the Annual Report. Please note that under anti-money laundering regulations, Link Market Services may require shareholders to complete an identification information form. If you are a Broker Sponsored shareholder, please contact your broker if you wish to sell your Brambles shares. DIVIDEND Shareholders may elect to receive dividend payments in Australian dollars or pounds sterling, by contacting Link Market Services at the address set out in Contact Information on the back cover of the Annual Report. ANNUAL GENERAL MEETING The Brambles Limited 2013 AGM will be held at 2.00pm (AEDT) on 22 October 2013 at The Wesley Theatre, Wesley Conference Centre, 220 Pitt Street, Sydney NSW FINANCIAL CALENDAR FINAL DIVIDEND 2013 Ex dividend date Monday, 9 September 2013 Record date Friday, 13 September 2013 Payment date Thursday, 10 October (PROVISIONAL) Announcement of interim results mid February 2014 Interim dividend mid April 2014 Announcement of final results mid August 2014 Final dividend mid October 2014 AGM November 2014 Brambles Annual Report Page 56

57 SHAREHOLDER INFORMATION CONTINUED ANALYSIS OF HOLDERS OF EQUITY SECURITIES AS AT 6 AUGUST 2013 SUBSTANTIAL SHAREHOLDERS Brambles has been notified of the following substantial shareholdings: Holder Number of ordinary shares % of issued ordinary share capital (1) Schroder Investment Management Australia Limited 101,032, % Commonwealth Bank of Australia 78,315, % (1) Percentages are as disclosed in substantial holding notices given to Brambles Limited. NUMBER OF ORDINARY SHARES ON ISSUE AND DISTRIBUTION OF HOLDINGS Holders Shares 1 1,000 26,405 12,851,184 1,001 5,000 27,450 64,683,869 5,001 10,000 5,156 36,107,846 10, ,000 3,076 63,716, ,001 and over 168 1,380,076,076 Total 62,255 1,557,435,403 The number of members holding less than a marketable parcel of 54 ordinary shares (based on a market price of A$9.40 on 6 August 2013) is 921 and they hold a total of 16,898 ordinary shares. The voting rights of ordinary shares are described on page 56. NUMBER OF SHARE RIGHTS ON ISSUE AND DISTRIBUTION OF HOLDINGS Holders Share rights 1 1,000 2, ,786 1,001 5, ,136 5,001 10, ,505 10, , ,205, ,001 and over 34 8,121,539 Total 2,911 12,724,155 The voting rights of performance share rights and MyShare Matching Awards are described on page 56. Brambles Annual Report Page 57

58 SHAREHOLDER INFORMATION CONTINUED TWENTY LARGEST ORDINARY SHAREHOLDERS Name Number of ordinary shares % of issued ordinary share capital HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 422,702, % J P MORGAN NOMINEES AUSTRALIA LIMITED 315,261, % NATIONAL NOMINEES LIMITED 287,862, % CITICORP NOMINEES PTY LIMITED 78,905, % BNP PARIBAS NOMS PTY LTD <DRP> 45,319, % JP MORGAN NOMINEES AUSTRALIA LIMITED <CASH INCOME A/C> 41,923, % CITICORP NOMINEES PTY LIMITED <COLONIAL FIRST STATE INV A/C> 36,303, % AMP LIFE LIMITED 11,963, % AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED 11,173, % BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C> 8,402, % HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED <NT-COMNWLTH SUPER CORP A/C> 7,615, % CITICORP NOMINEES PTY LIMITED <BHP BILLITON ADR HOLDERS A/C> 6,782, % CS FOURTH NOMINEES PTY LTD 5,862, % RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED <BKCUST A/C> 5,433, % ARGO INVESTMENTS LIMITED 4,556, % UBS NOMINEES PTY LTD 3,710, % RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED <MBA A/C> 3,656, % SHARE DIRECT NOMINEES PTY LTD <10026 A/C> 3,504, % UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD 3,355, % UBS NOMINEES PTY LTD 3,325, % Percentage of total holdings of 20 largest holders 1,307,618, % VOTING RIGHTS: ORDINARY SHARES Brambles Limited s constitution provides that each member entitled to attend and vote may do so in person or by proxy, by attorney or, where the member is a body corporate, by representative. The Directors may also determine that at any general meeting, a member who is entitled to attend and vote on a resolution at that meeting is entitled to a direct vote in relation to that resolution. The Directors have prescribed rules to govern direct voting which are available at On a show of hands, every member present in person, by proxy, by attorney or, where the member is a body corporate, by representative and having the right to vote on a resolution has one vote. The Directors have determined that members who submit a direct vote will be excluded on a vote by a show of hands. On a poll, every member present in person, by proxy, by attorney or, where the member is a body corporate, by representative and having the right to vote on the resolution has one vote for each ordinary share held. The Directors have determined that votes cast by members who submit a direct vote will be included on a vote by a poll, being one vote for each ordinary share held. VOTING RIGHTS: SHARE RIGHTS Performance share rights over ordinary shares and MyShare Matching Awards do not carry any voting rights. Brambles Annual Report Page 58

59 FINANCIAL REPORT for the year ended 30 June 2013 INDEX PAGE Consolidated income statement 58 Consolidated statement of comprehensive income 59 Consolidated balance sheet 60 Consolidated cash flow statement 61 Consolidated statement of changes in equity 62 Notes to the financial statements 1. Basis of preparation Significant accounting policies Critical accounting estimates and judgements Segment information Profit from ordinary activities - continuing operations Significant items - continuing operations Employment costs - continuing operations Net finance costs Income tax Earnings per share Dividends Discontinued operations Business combinations Cash and cash equivalents Trade and other receivables Inventories Derivative financial instruments Other assets Investments Property, plant and equipment Goodwill Intangible assets Trade and other payables Borrowings Provisions Retirement benefit obligations Contributed equity Share-based payments Reserves and retained earnings Financial risk management Cash flow statement - additional information Commitments Contingencies Auditors' remuneration Key management personnel Related party information Events after balance sheet date Parent entity financial information 119 Directors' declaration 120 Independent auditors' report 121 Auditors' independence declaration 123 Brambles Annual Report Page 59

60 CONSOLIDATED INCOME STATEMENT for the year ended 30 June 2013 Note US$m US$m Continuing operations Sales revenue 5A 5, ,625.0 Other income 5A Operating expenses 5B (5,030.2) (4,833.9) Share of results of joint ventures 19C Operating profit 1, Finance revenue Finance costs (131.2) (173.5) Net finance costs 8 (110.9) (152.0) Profit before tax Tax expense 9 (260.4) (212.3) Profit from continuing operations Profit from discontinued operations Profit for the year Profit attributable to members of the parent entity Earnings per share (cents) 10 Total - basic diluted Continuing operations - basic diluted The consolidated income statement should be read in conjunction with the accompanying notes. Brambles Annual Report Page 60

61 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 30 June 2013 Note US$m US$m Profit for the year Other comprehensive income: Items that will not be reclassified to profit or loss: Actuarial losses on defined benefit pension plans 26E (11.1) (19.7) Income tax on items that will not be reclassified to profit or loss 9A (8.7) (14.3) Items that may be reclassified to profit or loss: Exchange differences: - on translation of foreign subsidiaries 29 (70.7) (192.5) - FCTR released to profit 29 - (12.5) - on entities disposed taken to profit 29 - (1.7) Cash flow hedges Income tax on items that may be reclassified to profit or loss 9A (0.7) (1.7) (69.6) (203.3) Other comprehensive loss for the year (78.3) (217.6) Total comprehensive income for the year attributable to members of the parent entity The consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. Brambles Annual Report Page 61

62 CONSOLIDATED BALANCE SHEET as at 30 June 2013 Note US$m US$m ASSETS Current assets Cash and cash equivalents Trade and other receivables 15 1, ,054.8 Inventories Derivative financial instruments Other assets Total current assets 1, ,352.3 Non-current assets Other receivables Investments Property, plant and equipment 20 4, ,138.6 Goodwill 21 1, ,607.4 Intangible assets Deferred tax assets 9C Derivative financial instruments Other assets Total non-current assets 6, ,193.4 Total assets 7, ,545.7 LIABILITIES Current liabilities Trade and other payables 23 1, ,176.8 Borrowings Derivative financial instruments Tax payable Provisions Total current liabilities 1, ,404.8 Non-current liabilities Borrowings 24 2, ,777.7 Derivative financial instruments Provisions Retirement benefit obligations Deferred tax liabilities 9D Other liabilities Total non-current liabilities 3, ,400.5 Total liabilities 4, ,805.3 Net assets 3, ,740.4 EQUITY Contributed equity 27 6, ,484.1 Reserves 29 (6,748.2) (6,689.1) Retained earnings 29 3, ,945.4 Total equity 3, ,740.4 The consolidated balance sheet should be read in conjunction with the accompanying notes. Brambles Annual Report Page 62

63 CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 June 2013 Note US$m US$m Cash flows from operating activities Receipts from customers 6, ,217.7 Payments to suppliers and employees (4,961.6) (4,759.2) Cash generated from operations 1, ,458.5 Dividends received from joint ventures Interest received Interest paid (119.8) (164.2) Income taxes paid on operating activities (191.1) (215.1) Net cash inflow from operating activities 31B 1, ,089.2 Cash flows from investing activities Payments for property, plant and equipment (905.1) (949.4) Proceeds from sale of property, plant and equipment Payments for intangible assets (36.7) (53.8) Costs incurred on disposal of businesses - (0.4) Acquisition of subsidiaries, net of cash acquired (179.0) (22.7) Net cash outflow from investing activities (1,010.3) (932.8) Cash flows from financing activities Proceeds from borrowings 1, ,721.5 Repayments of borrowings (1,679.6) (1,710.0) Net inflow from hedge instruments Proceeds from issues of ordinary shares Dividends paid (425.5) (397.7) Net cash outflow from financing activities (395.4) (55.0) Net (decrease)/increase in cash and cash equivalents (65.8) Cash and deposits, net of overdrafts, at beginning of the year Effect of exchange rate changes (11.9) (29.1) Cash and deposits, net of overdrafts, at end of the year 31A The consolidated cash flow statement should be read in conjunction with the accompanying notes. Brambles Annual Report Page 63

64 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 30 June 2013 Non- Share Retained controlling Note capital Reserves 1 earnings interest Total US$m US$m US$m US$m US$m Year ended 30 June 2012 Opening balance 14,370.2 (14,716.8) 2, ,451.4 Profit for the year Other comprehensive income - (203.3) (14.3) - (217.6) Total comprehensive income - (203.3) Share-based payments: - expense recognised shares issued - (11.1) - - (11.1) - equity component of related tax Transactions with owners in their capacity as owners: - dividends declared (414.2) - (414.2) - issues of ordinary shares, net of transaction costs - capital reduction (8,223.4) 8, disposal of non-controlling interest (0.4) (0.4) Closing balance 6,484.1 (6,689.1) 2, ,740.4 Year ended 30 June 2013 Opening balance 6,484.1 (6,689.1) 2, ,740.4 Profit for the year Other comprehensive income - (69.6) (8.7) - (78.3) Total comprehensive income - (69.6) Share-based payments: - expense recognised shares issued - (17.1) - - (17.1) - equity component of related tax Transactions with owners in their capacity as owners: - dividends declared (422.2) - (422.2) - issues of ordinary shares, net of transaction costs Closing balance 6,618.5 (6,748.2) 3, , Refer Note 29 for further information on reserves. The consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Brambles Annual Report Page 64

65 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 June 2013 NOTE 1. BASIS OF PREPARATION These financial statements present the consolidated results of Brambles Limited (ACN ) (Company) and its subsidiaries (Brambles or the Group) for the year ended 30 June The financial statements comply with International Financial Reporting Standards (IFRS). This general purpose financial report has been prepared in accordance with Australian Accounting Standards (AAS), other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the requirements of the Corporations Act 2001 (Act). The financial statements are drawn up in accordance with the conventions of historical cost accounting, except for derivative financial instruments and financial assets and liabilities at fair value through profit or loss. References to 2013 and 2012 are to the financial years ended 30 June 2013 and 30 June 2012 respectively. Details of Unification, whereby Brambles Limited acquired all the share capital of Brambles Industries Limited (BIL) and Brambles Industries plc (BIP) under separate schemes of arrangement on 4 December 2006, are set out in Brambles 2007 Annual Report. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements and all comparatives have been prepared using the accounting policies set out below which are consistent with the prior year, except for financial statements presentation. Changes in accounting policies Brambles has applied revised AASB 101: Presentation of Financial Statements from 1 July The revised standard requires entities to separate items presented in other comprehensive income into two groups, based on whether the items may be recycled to profit or loss in the future. This change in accounting policy only relates to disclosures and does not impact amounts recognised in the financial statements. Comparative information has been re-presented to conform to the revised standard. Basis of consolidation The consolidated financial statements of Brambles include the assets, liabilities and results of Brambles Limited and all its legal subsidiaries. The consolidation process eliminates all inter-entity accounts and transactions. Any financial statements of overseas subsidiaries that have been prepared in accordance with overseas accounting practices have been adjusted to comply with AAS before inclusion in the consolidation process. The financial statements of all material subsidiaries are prepared for the same reporting period. Business combinations On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition. The interest of non-controlling shareholders is stated at the noncontrolling proportion of the fair values of the assets and liabilities recognised. Any acquisition-related transaction costs are expensed in the period of acquisition. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Investment in controlled entities Shares in controlled entities, as recorded in the parent entity, are recorded at cost, less provision for impairment. Investment in joint ventures Investments in joint venture entities are accounted for using the equity method in the consolidated financial statements, and include any goodwill arising on acquisition. Under this method, Brambles share of the post-acquisition profits or losses of the joint venture is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in consolidated reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. If Brambles share of losses in a joint venture equals or exceeds its interest in the joint venture, Brambles does not recognise further losses unless it has incurred obligations or made payments on behalf of the joint venture. Loans to equity accounted joint ventures under formal loan agreements are long term in nature and are included as investments. Where there has been a change recognised directly in the joint venture s equity, Brambles recognises its share of any changes as a change in equity. Non-current assets held for sale Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Discontinued operations The trading results for business operations disposed during the year or classified as held for sale are disclosed separately as discontinued operations in the income statement. The amount disclosed includes any related impairment losses recognised and any gains or losses arising on disposal. Comparative amounts for the prior year are restated in the income statement to include current year discontinued operations. Presentation currency The consolidated and summarised parent entity financial statements are presented in US dollars. Brambles uses the US dollar as its presentation currency because: - a significant portion of Brambles activity is denominated in US dollars; and - the US dollar is widely understood by Australian, UK and international investors and analysts. Brambles Annual Report Page 65

66 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 June 2013 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED Foreign currency Items included in the financial statements of each of Brambles entities are measured using the functional currency of each entity. Foreign currency transactions are translated into the functional currency of each entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation at year-end rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement, except where deferred in equity as qualifying cash flow hedges or qualifying net investment hedges. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are recognised directly in equity. The results and cash flows of Brambles Limited, subsidiaries and joint ventures are translated into US dollars using the average exchange rates for the period. Where this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, the exchange rate on the transaction date is used. Assets and liabilities of Brambles Limited, subsidiaries and joint ventures are translated into US dollars at the exchange rate ruling at the balance sheet date. The share capital of Brambles Limited is translated into US dollars at historical rates. All resulting exchange differences arising on the translation of Brambles overseas and Australian entities are recognised as a separate component of equity. The financial statements of foreign subsidiaries and joint ventures that report in the currency of a hyperinflationary economy are restated in terms of the measuring unit current at the balance sheet date before they are translated into US dollars. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The principal exchange rates affecting Brambles were: US$:A$ US$: US$: Average Year end 30 June June Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to Brambles and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of duties and taxes paid (Goods and Services Tax and local equivalents). Revenue for services is recognised when invoicing the customer following the provision of the service and/or under the terms of agreed contracts in accordance with agreed contractual terms in the period in which the service is provided. Other income Other income includes net gains on disposal of property, plant and equipment in the ordinary course of business, which are recognised when control of the property has passed to the buyer. Amounts arising from compensation for irrecoverable pooling equipment are recognised only when it is probable that they will be received. Dividends Dividend revenue is recognised when Brambles right to receive the payment is established. Dividends received from investments in subsidiaries and joint ventures are recognised as revenue, even if they are paid out of pre-acquisition profits. Finance revenue Interest revenue is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset. Borrowing costs Borrowing costs are recognised as expenses in the year in which they are incurred, except where they are included in the cost of qualifying assets. The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the entity s outstanding borrowings during the year. No borrowing costs were capitalised in 2013 or Pensions and other post-employment benefits Payments to defined contribution pension schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where Brambles obligations under the schemes are equivalent to those arising in a defined contribution pension scheme. A liability in respect of defined benefit pension schemes is recognised in the balance sheet, measured as the present value of the defined benefit obligation at the reporting date less the fair value of the pension scheme s assets at that date. Pension obligations are measured as the present value of estimated future cash flows discounted at rates reflecting the yields of high quality corporate bonds. The costs of providing pensions under defined benefit schemes are calculated using the projected unit credit method, with actuarial valuations being carried out at each balance sheet date. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. Actuarial gains and losses arising from differences between expected and actual returns, and the effect of changes in actuarial assumptions are recognised in full through the statement of comprehensive income in the period in which they arise. The costs of other post-employment liabilities are calculated in a similar way to defined benefit pension schemes and spread over the period during which benefit is expected to be derived from the employees services, in accordance with the advice of qualified actuaries. Brambles Annual Report Page 66

67 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 June 2013 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED Executive and employee share-based compensation plans Incentives in the form of share-based compensation benefits are provided to executives and employees under performance share and MyShare employee share plans approved by shareholders. Performance share awards are fair valued by qualified actuaries at their grant dates in accordance with the requirements of AASB 2: Share-based Payments, using a binomial model. The cost of equitysettled transactions is recognised, together with a corresponding increase in equity, on a straight-line basis over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). Executives and employees in certain jurisdictions are provided cash incentives calculated by reference to the awards under the sharebased compensation schemes (phantom shares). These phantom shares are fair valued on initial grant and at each subsequent reporting date. The cost of such phantom shares is charged to the income statement over the relevant vesting periods, with a corresponding increase in provisions. The fair value calculation of performance shares granted excludes the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, Brambles reviews its estimate of the number of performance shares that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. Significant Items and Underlying Profit Significant Items are items of income or expense which are, either individually or in aggregate, material to Brambles or to the relevant business segment and: - outside the ordinary course of business (e.g. gains or losses on the sale or termination of operations, the cost of significant reorganisations or restructuring); or - part of the ordinary activities of the business but unusual due to their size and nature. Underlying Profit is a non-statutory profit measure and represents profit from continuing operations before finance costs, tax and Significant Items. It is presented within the segment information note to assist users of the financial statements to better understand Brambles business results. ASSETS Cash and cash equivalents For purposes of the cash flow statement, cash includes deposits at call with financial institutions and other highly liquid investments which are readily convertible to cash on hand and are subject to an insignificant risk of changes in value, net of outstanding bank overdrafts. Bank overdrafts are presented within borrowings in the balance sheet. Receivables Trade receivables due within one year do not carry any interest and are recognised at amounts receivable less an allowance for any uncollectible amounts. Trade receivables are recognised when services are provided and settlement is expected within normal credit terms. Bad debts are written-off when identified. A provision for doubtful receivables is established when there is a level of uncertainty as to the full recoverability of the receivable, based on objective evidence. Significant financial difficulties of the debtor, probability that the debtor will enter liquidation, receivership or bankruptcy, and default or significant delay in payment are considered indicators that the trade receivable is doubtful. The amount of the provision is measured as the difference between the carrying amount of the trade receivables and the estimated future cash flows expected to be received from the relevant debtors. When a trade receivable for which a provision had been recognised becomes uncollectible in a subsequent period, it is written off against the provision account. Subsequent recoveries of amounts previously written off are credited against other expenses in the income statement. Inventories Stock and stores on hand are valued at the lower of cost and net realisable value and, where appropriate, provision is made for possible obsolescence. Work in progress, which represents partlycompleted work undertaken at pre-arranged rates but not invoiced at the balance sheet date, is recorded at the lower of cost or net realisable value. Cost is determined on a first-in, first-out basis and, where relevant, includes an appropriate portion of overhead expenditure. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and costs to make the sale. Recoverable amount of non-current assets At each reporting date, Brambles assesses whether there is any indication that an asset, or cash generating unit to which the asset belongs, may be impaired. Where an indicator of impairment exists, Brambles makes a formal estimate of recoverable amount. The recoverable amount of an asset is the greater of its fair value less costs to sell and its value in use. Where the carrying value of an asset exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. The impairment loss is recognised in the income statement in the reporting period in which the write-down occurs. The expected net cash flows included in determining recoverable amounts of non-current assets are discounted to their present values using a market risk adjusted discount rate. Property, plant and equipment Property, plant and equipment (PPE) is stated at cost, net of depreciation and any impairment, except land which is shown at cost less impairment. Cost includes expenditure that is directly attributable to the acquisition of assets, and, where applicable, an initial estimate of the cost of dismantling and removing the item and restoring the site on which it is located. Subsequent expenditure is capitalised only when it is probable that future economic benefits associated with the expenditure will flow to Brambles. Repairs and maintenance are expensed in the income statement in the period they are incurred. Depreciation is charged in the financial statements so as to write-off the cost of all PPE, other than freehold land, to their residual value on a straight-line or reducing balance basis over their expected useful lives to Brambles. Residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Brambles Annual Report Page 67

68 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 June 2013 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED The expected useful lives of PPE are generally: - buildings 50 years - pooling equipment 5 10 years - other plant and equipment (owned and leased) 3 20 years The cost of improvements to leasehold properties is amortised over the unexpired portion of the lease, or the estimated useful life of the improvement to Brambles, whichever is the shorter. Provision is made for irrecoverable pooling equipment based on experience in each market. The provision is presented within accumulated depreciation. The carrying values of PPE are reviewed for impairment when circumstances indicate their carrying values may not be recoverable. Assets are assessed within the cash generating unit to which they belong. Any impairment losses are recognised in the income statement. The recoverable amount of PPE is the greater of its fair value less costs to sell and its value in use. Value in use is determined as estimated future cash flows discounted to their present value using a pre-tax discount rate reflecting current market assessments of the time value of money and the risk specific to the asset. PPE is derecognised upon disposal or when no future economic benefits are expected to arise from continued use of the asset. Any net gain or loss arising on derecognition of the asset is included in the income statement and presented within other income in the period in which the asset is derecognised. Goodwill Goodwill is carried at cost less accumulated impairment losses. Goodwill is not amortised. Goodwill represents the excess of the cost of an acquisition over the fair value of Brambles share of the net identifiable assets of the acquired subsidiary or joint venture at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of joint ventures is included in investments in joint ventures. Upon acquisition, any goodwill arising is allocated to each cash generating unit expected to benefit from the acquisition. Goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired. An impairment loss is recognised when the recoverable amount of the cash generating unit is less than its carrying amount. On disposal of an operation, goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Intangible assets Intangible assets acquired are capitalised at cost, unless acquired as part of a business combination in which case they are capitalised at fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less provisions for amortisation and impairment. The costs of acquiring and developing computer software for internal use are capitalised as intangible non-current assets where it is used to support a significant business system and the expenditure leads to the creation of a durable asset. Useful lives have been established for all non-goodwill intangible assets. Amortisation charges are expensed in the income statement on a straight-line basis over those useful lives. Estimated useful lives are reviewed annually. The expected useful lives of intangible assets are generally: - customer lists and relationships 3 20 years - computer software 3 10 years There are no non-goodwill intangible assets with indefinite lives. Intangible assets are tested for impairment where an indicator of impairment exists, either individually or at the cash generating unit level. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised. LIABILITIES Payables Trade and other creditors represent liabilities for goods and services provided to Brambles prior to the end of the financial year which remain unpaid at the reporting date. The amounts are unsecured and are paid within normal credit terms. Non-current payables are discounted to present value using the effective interest method. Provisions Provisions for liabilities are made on the basis that, due to a past event, the business has a constructive or legal obligation to transfer economic benefits that are of uncertain timing or amount. Provisions are measured at the present value of management s best estimate at the balance sheet date of the expenditure required to settle the obligation. The discount rate used is a pre-tax rate that reflects current market assessments of the time value of money and the risks appropriate to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost in the income statement. Interest bearing liabilities Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the borrowing proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless Brambles has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Employee entitlements Employee entitlements are provided by Brambles in accordance with the legal and social requirements of the country of employment. Principal entitlements are for annual leave, sick leave, long service leave and contract entitlements. Annual leave and sick leave entitlements are presented within trade and other payables. Liabilities for annual leave, as well as those employee entitlements which are expected to be settled within one year, are measured at the amounts expected to be paid when they are settled. All other employee entitlement liabilities are measured at the estimated present value of the future cash outflows to be made in respect of services provided by employees up to the reporting date. Dividends A provision for dividends is only recognised where the dividends have been declared prior to the reporting date. Brambles Annual Report Page 68

69 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 June 2013 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED Leases Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Operating leases The minimum lease payments under operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight-line basis over the term of the lease. Finance leases Finance leases, which effectively transfer substantially all of the risks and benefits incidental to ownership of the leased item to Brambles, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, present value of the minimum lease payments, and disclosed as property, plant and equipment held under lease. A lease liability of equal value is also recognised. Lease payments are allocated between finance charges and a reduction of the lease liability so as to achieve a constant period rate of interest on the lease liability outstanding each period. The finance charge is recognised as a finance cost in the income statement. Capitalised lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. Income tax The income tax expense or benefit for the year is the tax payable or receivable on the current year s taxable income based on the national income tax rate for each jurisdiction, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, calculated using tax rates which are enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Deferred tax assets and liabilities are not recognised: - where the deferred tax arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or - in respect of temporary differences associated with investments in subsidiaries and joint ventures where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Current and deferred tax attributable to amounts recognised directly in equity are also recognised directly in equity. Financial assets Brambles classifies its financial assets in the following two categories: financial assets at fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets are recognised on Brambles balance sheet when Brambles becomes a party to the contractual provisions of the instrument. Derecognition takes place when Brambles no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party. Derivatives and hedging activities Derivative instruments used by Brambles, which are used solely for hedging purposes (i.e. to offset foreign exchange and interest rate risks), comprise interest rate swaps, caps, collars, forward rate agreements and forward foreign exchange contracts. Such derivative instruments are used to alter the risk profile of Brambles existing underlying exposure in line with Brambles risk management policies. Derivative financial instruments are stated at fair value. The fair value of forward exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturities at the balance sheet date. The fair value of interest rate swap contracts is calculated as the present value of the forward cash flows of the instrument after applying market rates and standard valuation techniques. For the purposes of hedge accounting, hedges are classified as either fair value hedges, cash flow hedges or net investment hedges. Fair value hedges Fair value hedges are derivatives that hedge exposure to changes in the fair value of a recognised asset or liability, or an unrecognised firm commitment. In relation to fair value hedges which meet the conditions for hedge accounting, any gain or loss from remeasuring the hedging instrument at fair value is recognised immediately in the income statement. Any gain or loss attributable to the hedged risk on remeasurement of the hedged item is adjusted against the carrying amount of the hedged item and recognised in the income statement. Where the adjustment is to the carrying amount of a hedged interest-bearing financial instrument, the adjustment is amortised to the income statement such that it is fully amortised by maturity. Hedge accounting is discontinued prospectively if the hedge is terminated or no longer meets the hedge accounting criteria. In this case, any adjustment to the carrying amounts of the hedged item for the designated risk for interest-bearing financial instruments is amortised to the income statement following termination of the hedge. Brambles Annual Report Page 69

70 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 June 2013 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED Cash flow hedges Cash flow hedges are derivatives that hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability, or a highly probable forecast transaction. In relation to cash flow hedges to hedge forecast transactions which meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income and reserves in equity and the ineffective portion is recognised in the income statement. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is kept in equity until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the year. For all other cash flow hedges, the gains or losses that are recognised in equity are transferred to the income statement in the same year in which the hedged firm commitment affects the net profit and loss, for example when the future sale actually occurs. When the hedged firm commitment results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability. Net investment hedges Hedges for net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income and reserves in equity and the ineffective portion is recognised in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed or sold. Derivatives that do not qualify for hedge accounting Where derivatives do not qualify for hedge accounting, gains or losses arising from changes in their fair value are taken directly to net profit or loss for the year. Contributed equity Ordinary shares including share premium are classified as contributed equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of Brambles own equity instruments. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds of issue. Earnings per share (EPS) Basic EPS is calculated as net profit attributable to members of the parent entity, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net profit attributable to members of the parent entity, adjusted for: - costs of servicing equity (other than dividends) and preference share dividends; - the after-tax effect of dividends and finance costs associated with dilutive potential ordinary shares that have been recognised as expenses; - other non-discretionary changes in revenues or expenses during the year that would result from the dilution of potential ordinary shares; and divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. EPS on Underlying profit after finance costs and tax is calculated as Underlying profit after finance costs and tax attributable to members of the parent entity, divided by the weighted average number of ordinary shares, adjusted for any bonus element. New accounting standards and interpretations issued but not yet applied At 30 June 2013, certain new accounting standards and interpretations have been published that will become mandatory in future reporting periods. Brambles has not early-adopted these new or amended accounting standards and interpretations in AASB 9: Financial Instruments and AASB : Amendments to Australian Accounting Standards arising from AASB 9 are applicable to annual reporting periods beginning on or after 1 January AASB 9 addresses the classification, measurement and derecognition of financial assets and liabilities and may affect Brambles accounting for financial assets and liabilities. Brambles does not expect that this standard will have a significant impact on its financial statements. AASB 10: Consolidated Financial Statements is applicable to annual reporting periods beginning 1 January This standard introduces a single definition of control that applies to all entities. The standard focuses on the need to have both power and rights or exposure to variable returns for control to be established. Brambles does not expect that this standard will have a significant impact on its financial statements. AASB 11: Joint Arrangements is applicable to annual reporting periods beginning 1 January AASB 11 introduces a principles based approach to accounting for joint arrangements. The focus has shifted from the legal structure of the joint arrangements to how the rights and obligations are shared by the parties to the joint arrangements. Brambles does not expect that this standard will have a significant impact on its financial statements. AASB 12: Disclosure of Interests in Other Entities is applicable to annual reporting periods beginning 1 January This standard sets out the disclosure requirements of AASB 10 and AASB 11. Application of this standard will not impact amounts recognised in the financial statements. AASB 13: Fair Value Measurements and AASB : Amendments to Australian Accounting Standards arising from AASB 13 are applicable to annual reporting periods beginning 1 January This standard provides guidance on measuring fair value and aims to enhance fair value disclosures. Brambles does not expect that this standard will have a significant impact on its financial statements. Brambles Annual Report Page 70

71 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS CONTINUED for the year ended 30 June 2013 NOTE 2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED AASB 19: Employee Benefits is applicable to annual reporting periods beginning on or after 1 January The revised standard requires all remeasurements of defined benefit plan assets and liabilities to be recognised immediately in other comprehensive income. It further requires net interest expense on net defined benefit liability to be calculated using a discount rate. The revised requirements replace the expected return on plan assets that is currently included in the profit or loss. If this revised standard had been applied in 2013, pre-tax profit would have been US$2.2 million lower primarily because the discount rate is lower than the expected return on plan assets. The net pension deficit would have been unchanged. AASB Amendments to Remove Individual Key Management Personnel Disclosure Requirements (effective 1 July 2013). The revised standard removes the individual key management personnel (KMP) disclosure requirements from AASB 124 Related Party Disclosures, to achieve consistency with the international equivalent standard and remove a duplication of the requirements with the Corporations Act While this will reduce the disclosures that are currently required in the notes to the financial statements, it will not affect any of the amounts recognised in the financial statements. The amendments cannot be adopted early. AASB : Amendments to Australian Accounting Standard Offsetting Financial Assets and Financial Liabilities and AASB : Disclosures - Offsetting Financial Assets and Financial Liabilities (effective 1 January 2014 and 1 January 2013 respectively). The revised standards clarify requirements to offset financial assets and financial liabilities in the balance sheet. The revised requirements are not expected to affect the accounting for any of Brambles current offsetting arrangements, however additional disclosures in relation to offsetting arrangements may be required. Rounding of amounts As Brambles is a company of a kind referred to in ASIC Class Order 98/100, relevant amounts in the financial statements and Directors Report have been rounded to the nearest hundred thousand US dollars or, in certain cases, to the nearest thousand US dollars. NOTE 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS In applying its accounting policies, Brambles has made estimates and assumptions concerning the future, which may differ from the related actual outcomes. Those estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Irrecoverable pooling equipment provisioning Loss or damage is an inherent risk of pooling equipment operations. Brambles pooling equipment operations around the world differ in terms of business model, market dynamics, customer and distribution channel profiles, contractual arrangements and operational details. CHEP conducts audits continuously throughout the year to confirm the existence and the condition of its pooling equipment assets and to validate CHEP s customer hire records. During these audits, which take place at CHEP plants, customer sites and other locations, pooling equipment is counted on a sample basis and reconciled to the balances shown in CHEP s customer hire records. Brambles also monitors its pooling equipment operations using detailed key performance indicators (KPIs). The irrecoverable pooling equipment provision is determined by reference to historical statistical data in each market, including the outcome of audits and relevant KPIs, together with management estimates of future equipment losses. Impairment of goodwill Brambles business units undertake an impairment review process annually to ensure that goodwill balances are not carried at amounts that are in excess of their recoverable amounts. The recoverable amount of the goodwill in continuing operations is determined based on value in use calculations undertaken at the cash generating unit level. These calculations require the use of key assumptions which are set out in Note 21. Income taxes Brambles is a global company and is subject to income taxes in many jurisdictions around the world. Significant judgement is required in determining the provision for income taxes on a worldwide basis. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. Brambles recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from amounts provided, such differences will impact the current and deferred tax provisions in the period in which such outcome is obtained. Refer to Note 9 for further details. Brambles Annual Report Page 71

72 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 4. SEGMENT INFORMATION Brambles' segment information is provided on the same basis as internal management reporting to the CEO and reflects how Brambles is organised and managed. Brambles has seven reportable segments, being Pallets - Americas, Pallets - EMEA, Pallets - Asia-Pacific (each pallet pooling businesses), Reusable Plastic Crates (RPCs) (crate pooling business), Containers (container pooling businesses), Recall (information management business) and Brambles HQ (corporate centre). Discontinued operations comprise businesses which were divested in prior years. Segment performance is measured on sales, Underlying Profit, cash flow from operations and Brambles Value Added (BVA). Underlying Profit is the main measure of segment profit. A reconciliation between Underlying Profit and operating profit is set out below. Segment sales revenue is measured on the same basis as in the income statement. Segment sales revenue is allocated to segments based on product categories and physical location of the business unit that invoices the customer. Intersegment revenue during the period was immaterial. There is no single external customer who contributed more than 10% of Group sales revenue. Assets and liabilities are measured consistently in segment reporting and in the balance sheet. Assets and liabilities are allocated to segments based on segment use and physical location. Cash, borrowings and tax balances are managed centrally and are not allocated to segments. By operating segment Sales Cash flow from Brambles revenue operations 1 Value Added US$m US$m US$m US$m US$m US$m Pallets - Americas 2, , Pallets - EMEA 1, , Pallets - Asia-Pacific Pallets 3, , RPCs (40.8) (36.1) (38.3) Containers (12.3) 4.3 Recall Brambles HQ - - (35.0) (42.4) (26.7) (27.1) Total Continuing 5, , By geographic origin Americas 2, ,632.4 Europe 2, ,041.4 Australia Other Total 5, ,625.0 By operating segment Operating Significant Items Underlying profit 3 before tax 4 Profit US$m US$m US$m US$m US$m US$m Pallets - Americas (4.5) (17.2) Pallets - EMEA (14.2) (5.5) Pallets - Asia-Pacific (1.6) (0.9) Pallets (20.3) (23.6) RPCs (0.3) (16.2) Containers (0.4) Recall (16.0) (14.1) Brambles HQ (43.4) (54.4) (9.0) (16.6) (34.4) (37.8) Continuing operations 1, (46.0) (70.5) 1, ,009.7 Discontinued operations Total 1, (44.6) (70.1) Brambles Annual Report Page 72

73 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 4. SEGMENT INFORMATION - CONTINUED Capital Depreciation expenditure 5 and amortisation US$m US$m US$m US$m By operating segment Pallets - Americas Pallets - EMEA Pallets - Asia-Pacific Pallets RPCs Containers Recall Brambles HQ Total By operating segment Segment assets Segment liabilities US$m US$m US$m US$m Pallets - Americas 2, , Pallets - EMEA 1, , Pallets - Asia-Pacific Pallets 4, , RPCs 1, , Containers Recall 1, , Brambles HQ Total segment assets and liabilities 7, , , ,389.0 Cash and borrowings , ,864.1 Current tax balances Deferred tax balances Equity-accounted investments Total assets and liabilities 7, , , ,805.3 Non-current assets by geographic origin 6 Americas 3, ,896.6 Europe 2, ,231.6 Australia Other Total 6, ,136.8 Cash Flow from Operations is cash flow generated after net capital expenditure but excluding Significant Items that are outside the ordinary course of business. BVA is a non-statutory profit measure and represents the value generated over and above the cost of the capital used to generate that value. It is calculated using fixed 30 June 2012 exchange rates as: Underlying Profit; plus Significant Items that are part of the ordinary activities of the business; less Average Capital Invested, adjusted for accumulated pre-tax Significant Items that are part of the ordinary activities of the business, multiplied by 12%. Operating profit is segment revenue less segment expense and excludes net finance costs. Underlying Profit is a non-statutory profit measure and represents profit from continuing operations before finance costs, tax and Significant Items (refer Note 6). It is presented to assist users of the financial statements to better understand Brambles' business results. Capital expenditure is based on an accruals basis and includes expenditure on property, plant & equipment and intangibles Non-current assets exclude financial instruments and deferred tax assets. Brambles Annual Report Page 73

74 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 5. PROFIT FROM ORDINARY ACTIVITIES - CONTINUING OPERATIONS US$m US$m A) REVENUE AND OTHER INCOME - CONTINUING OPERATIONS Sales revenue 5, ,625.0 Net gains on disposals of property, plant and equipment Other operating income Other income Total income 6, ,767.6 B) OPERATING EXPENSES - CONTINUING OPERATIONS Employment costs (Note 7) 1, ,055.6 Service suppliers: - transport 1, repairs and maintenance subcontractors and other service suppliers Raw materials and consumables Occupancy Depreciation of property, plant and equipment Impairment of software and property, plant and equipment Irrecoverable pooling equipment provision expense Amortisation of intangible assets and deferred expenditure - software acquired intangible assets (other than software) deferred expenditure Other , ,833.9 C) NET FOREIGN EXCHANGE GAINS AND LOSSES - CONTINUING OPERATIONS Net gains included in operating profit Net gains included in net finance costs Includes a US$12.5 million foreign exchange gain on capital repatriation by overseas subsidiaries during Refer Note 6 for further details. Brambles Annual Report Page 74

75 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 6. SIGNIFICANT ITEMS - CONTINUING OPERATIONS Significant Items are items of income or expense which are, either individually or in aggregate, material to Brambles or to the relevant business segment and: outside the ordinary course of business (e.g. gains or losses on the sale or termination of operations, the cost of significant reorganisations or restructuring); or part of the ordinary activities of the business but unusual due to their size and nature. Significant Items are disclosed to assist users of the financial statements to better understand Brambles business results. Items outside the ordinary course of business: 2013 US$m Before After tax Tax tax - acquisition-related costs a (4.6) - (4.6) - restructuring and integration costs b (22.0) 8.9 (13.1) - impairment of software development costs c (15.3) 1.5 (13.8) - Recall transaction costs d (4.1) (1.7) (5.8) Significant Items from continuing operations (46.0) 8.7 (37.3) Items outside the ordinary course of business: 2012 US$m Before After tax Tax tax - acquisition-related costs a (2.8) 0.4 (2.4) - restructuring and integration costs b (53.2) 16.1 (37.1) - Recall transaction costs d (21.2) 2.8 (18.4) - pension costs e (5.8) 1.6 (4.2) - foreign exchange gain on capital repatriation f Significant Items from continuing operations (70.5) 20.9 (49.6) a b c d e f Professional fees and other transaction costs were incurred in relation to the Pallecon acquisition in 2013 and Driessen Services, Paramount Pallet and IFCO acquisitions in Redundancy, plant closure, integration and other restructuring costs of US$22.0 million were incurred in various countries during the year, net of reversal of prior year costs not incurred (2012: US$53.2 million). Following a change in Recall's IT strategy, software development costs were written down to their recoverable values resulting in an impairment charge of US$15.3 million. Professional fees of US$4.1 million were incurred during the year in relation to the Recall demerger process (refer Note 37). Costs of US$21.2 million, primarily professional fees, were incurred in 2012 in relation to the terminated Recall divestment process. During 2012, CHEP South Africa changed its retirement plan from defined benefit to defined contribution. As required by AASB 119: Employee benefits, the actuarially-assessed value of a related enhancement in retirement benefits was treated as a past service cost and recognised in the income statement. During 2012, capital returns were made by overseas subsidiaries. As required by AASB 121: The Effects of Changes in Foreign Exchange Rates, a portion of the accumulated foreign currency translation reserve held in relation to the overseas subsidiaries were recognised in the income statement, resulting in a US$12.5 million foreign exchange gain. Brambles Annual Report Page 75

76 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 7. EMPLOYMENT COSTS - CONTINUING OPERATIONS US$m US$m Wages and salaries Social security costs Share-based payment expense Pension costs: - defined contribution plans defined benefit plans (1.3) 8.2 Other post-employment benefits , , The average monthly number of employees in continuing operations was: Pallets 11,365 10,629 RPCs Containers Recall 4,871 4,952 Brambles HQ ,037 17,021 NOTE 8. NET FINANCE COSTS US$m US$m Finance revenue Bank accounts and short term deposits Derivative financial instruments Other Finance costs Interest expense on bank loans and borrowings (125.6) (156.3) Derivative financial instruments (1.3) (5.7) Other (4.3) (11.5) (131.2) (173.5) Net finance costs (110.9) (152.0) Brambles Annual Report Page 76

77 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 9. INCOME TAX US$m US$m A) COMPONENTS OF TAX EXPENSE Amounts recognised in the income statement Current income tax - continuing operations: - income tax charge prior year adjustments (4.2) (36.7) Deferred tax - continuing operations: - origination and reversal of temporary differences previously unrecognised tax losses (14.2) (16.9) - prior year adjustments (1.8) Tax expense - continuing operations Tax expense/(benefit) - discontinued operations (Note 12) 0.7 (1.0) Tax expense recognised in the income statement Amounts recognised in the statement of comprehensive income - on actuarial losses on defined benefit pension plans (2.4) (5.4) - on losses on revaluation of cash flow hedges Tax expense/(benefit) recognised directly in the statement of comprehensive income (1.7) (3.7) B) RECONCILIATION BETWEEN TAX EXPENSE AND ACCOUNTING PROFIT BEFORE TAX Profit before tax - continuing operations Tax at standard Australian rate of 30% (2012: 30%) Effect of tax rates in other jurisdictions (25.3) (37.5) Prior year adjustments (6.0) (16.4) Current year tax losses not recognised Foreign withholding tax unrecoverable Non-deductible expenses Prior year tax losses recouped/recognised (14.2) (16.9) Other Tax expense - continuing operations Tax expense/(benefit) - discontinued operations (Note 12) 0.7 (1.0) Total income tax expense Brambles Annual Report Page 77

78 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 9. INCOME TAX - CONTINUED C) COMPONENTS OF AND CHANGES IN DEFERRED TAX ASSETS Deferred tax assets shown in the balance sheet are represented by cumulative temporary differences attributable to: Items recognised through the income statement Employee benefits Provisions Losses available against future taxable income Other Items recognised directly in equity US$m US$m Actuarial losses on defined benefit pension plans Cash flow hedges Share-based payments Set-off against deferred tax liabilities (377.8) (388.0) Net deferred tax assets Changes in deferred tax assets were as follows: At 1 July (Charged)/credited to the income statement (Charged)/credited directly to equity (8.8) 6.4 Offset against deferred tax liabilities (10.2) (63.2) Acquisition of subsidiary Currency variations 0.2 (7.3) At 30 June Deferred tax assets are recognised for carried forward tax losses to the extent that the realisation of the related tax benefit through future taxable profits is probable. At reporting date, Brambles has unused tax losses of US$1,301.5 million (2012: US$1,298.5 million) available for offset against future profits. A deferred tax asset has been recognised in respect of US$852.0 million (2012: US$877.0 million) of such losses. The benefit for tax losses will only be obtained if: Brambles derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised; Brambles continues to comply with the conditions for deductibility imposed by tax legislation; and no changes in tax legislation adversely affect Brambles in realising the benefit from the deductions for the losses. No deferred tax asset has been recognised in respect of the remaining unused tax losses of US$449.5 million (2012: US$421.5 million) due to the unpredictability of future profit streams in the relevant jurisdictions. Tax losses of US$563.4 million, which have been recognised in the balance sheet, will expire between 2014 and All other losses may be carried forward indefinitely. Brambles Annual Report Page 78

79 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 9. INCOME TAX - CONTINUED US$m US$m D) COMPONENTS AND CHANGES IN DEFERRED TAX LIABILITIES Deferred tax liabilities shown in the balance sheet are represented by cumulative temporary differences attributable to: Items recognised through the income statement Accelerated depreciation for tax purposes Other Items recognised in the statement of comprehensive income Actuarial gains on defined benefit pension plans Cash flow hedges Set-off against deferred tax assets (377.8) (388.0) Net deferred tax liabilities Changes in deferred tax liabilities were as follows: At 1 July Charged to the income statement (Credited)/charged directly to equity (16.6) 1.5 Acquisition of subsidiary 3.3 (31.8) Offset against deferred tax asset (10.2) (63.2) Currency variations (8.3) (41.3) At 30 June At reporting date, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognised in the consolidated financial statements was US$966.2 million (2012: US$508.2 million). No liability has been recognised for these temporary differences because Brambles controls whether there is a liability in relation to distributions from its subsidiaries and is satisfied that there is no liability in the foreseeable future. E) TAX CONSOLIDATION Brambles Limited and its Australian subsidiaries formed a tax consolidated group in Brambles Limited, as the head entity of the tax consolidated group, and its Australian subsidiaries have entered into a tax sharing agreement in order to allocate income tax expense. The tax sharing agreement uses a stand-alone basis of allocation. Consequently, Brambles Limited and its Australian subsidiaries account for their own current and deferred tax amounts as if they each continue to be taxable entities in their own right. In addition, the agreement provides funding rules setting out the basis upon which subsidiaries are to indemnify Brambles Limited in respect of tax liabilities and the methodology by which subsidiaries in tax loss are to be compensated. Brambles Annual Report Page 79

80 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 10. EARNINGS PER SHARE US cents US cents Earnings per share - basic diluted From continuing operations - basic diluted basic, on Underlying Profit after finance costs and tax From discontinued operations - basic diluted Performance share rights and MyShare matching conditional rights granted under Brambles' share plans are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. Details are set out in Note million million A) WEIGHTED AVERAGE NUMBER OF SHARES DURING THE YEAR Used in the calculation of basic earnings per share 1, ,482.3 Adjustment for share rights Used in the calculation of diluted earnings per share 1, , US$m US$m B) RECONCILIATIONS OF PROFITS USED IN EPS CALCULATIONS Statutory profit Profit from continuing operations Profit from discontinued operations Profit used in calculating basic and diluted EPS Underlying Profit after finance costs and tax Underlying Profit (Note 4) 1, ,009.7 Net finance costs (Note 8) (110.9) (152.0) Underlying Profit before tax Tax expense on Underlying Profit (269.1) (233.2) Underlying Profit after finance costs and tax which reconciles to statutory profit: Underlying Profit after finance costs and tax Significant Items after tax (Note 6) (37.3) (49.6) Profit from continuing operations Brambles Annual Report Page 80

81 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 11. DIVIDENDS A) DIVIDENDS PAID DURING THE YEAR Interim Final Dividend per share (in Australian cents) Franked amount at 30% tax (in Australian cents) Cost (in US$ million) Payment date 11 April October 2012 B) DIVIDEND DECLARED AFTER REPORTING DATE Final 2013 Dividend per share (in Australian cents) 13.5 Franked amount at 30% tax (in Australian cents) 4.1 Cost (in US$ million) Payment date 10 October 2013 Dividend record date 13 September 2013 As this dividend had not been declared at the reporting date, it is not reflected in these financial statements. C) FRANKING CREDITS US$m US$m Franking credits available for subsequent financial years based on a tax rate of 30% The amounts above represent the balance of the franking account as at the end of the year, adjusted for: - franking credits that will arise from the payment of the current tax liability; - franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; - franking credits that will arise from dividends recognised as receivables at the reporting date; and - franking credits that may be prevented from being distributed in subsequent financial years. The final 2013 dividend has been franked at 30%. Brambles Annual Report Page 81

82 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 12. DISCONTINUED OPERATIONS Discontinued operations primarily comprise net adjustments to divestment provisions. Financial information relating to discontinued operations is summarised below: Profit before tax US$m US$m Tax (expense)/benefit (0.7) 1.0 Profit for the year from discontinued operations Net cash outflow from operating activities (1.0) (1.0) NOTE 13. BUSINESS COMBINATIONS ACQUISITIONS A) Pallecon On 28 December 2012, Brambles obtained control of Pallecon, a leading provider of IBCs (Intermediate Bulk Containers) in Europe and Asia-Pacific, for consideration of 136 million. The fair value of the Pallecon assets acquired, liabilities assumed and goodwill were as follows, based on preliminary acquisition accounting data which will be finalised by December 2013: Purchase consideration Less: fair value of net identifiable assets acquired (51.7) Goodwill (at acquisition date) US$m The goodwill acquired is attributable to the profitability of the acquired business and anticipated synergies with Brambles' existing Containers operations, as well as benefits derived from the acquired workforce and other intangible assets that cannot be separately recognised. On acquisition of Pallecon, assets acquired and liabilities assumed were: Fair value Cash 1.6 Receivables 11.2 Inventories 4.6 Property, plant and equipment 34.0 Intangibles 18.7 Other assets 0.5 Trade and other payables 10.0 Borrowings 2.0 Deferred taxes 3.1 Other liabilities 3.8 Net assets 51.7 US$m Brambles Annual Report Page 82

83 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 13. BUSINESS COMBINATIONS - CONTINUED Cash outflow on acquisition of Pallecon was as follows: 2013 US$m Purchase consideration Less: cash acquired (1.6) Net cash outflow B) Other In addition to the Pallecon acquisition, there were other minor acquisitions in 2013 with immaterial impact. NOTE 14. CASH AND CASH EQUIVALENTS US$m US$m Cash at bank and in hand Short term deposits Cash and cash equivalents include balances of US$3.2 million (2012: US$5.7 million) used as security for various contingent liabilities and is not readily accessible. Short term deposits have initial maturities varying between 7 days and 3 months. Refer to Note 30 for other financial instruments disclosures. NOTE 15. TRADE AND OTHER RECEIVABLES Current Trade receivables Provision for doubtful receivables (A) (27.9) (21.3) Net trade receivables Other debtors Accrued and unbilled revenue , ,054.8 Non-current Other receivables A) PROVISION FOR DOUBTFUL RECEIVABLES Trade receivables are non-interest bearing and are generally on day terms. A provision for doubtful receivables is established when there is a level of uncertainty as to the full recoverability of the receivable, based on objective evidence. A provision of US$10.1 million (2012: US$7.7 million) has been recognised as an expense in the current year for specific trade and other receivables for which such evidence exists. Movements in the provision for doubtful receivables were as follows: At 1 July Charge for the year Amounts written off (4.1) (3.9) Acquisition of subsidiaries Foreign exchange differences - (1.9) At 30 June Brambles Annual Report Page 83

84 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 15. TRADE AND OTHER RECEIVABLES - CONTINUED US$m US$m At 30 June, the ageing analysis of trade receivables by reference to due dates was as follows: Not past due Past due 0-30 days but not impaired Past due days but not impaired Past due days but not impaired Past 90 days but not impaired Impaired At 30 June 2013, trade receivables of US$253.8 million (2012: US$210.2 million) were past due but not doubtful. These trade receivables comprise customers who have a good debt history and are considered recoverable. At 30 June 2013, trade receivables of US$27.9 million (2012: US$21.3 million) were considered to be impaired. A provision of US$27.9 million (2012: US$21.3 million) has been recognised for doubtful receivables. Other debtors primarily comprise GST/VAT recoverable, loss compensation receivables and certain balances arising from outside Brambles' ordinary business activities, such as deferred proceeds on sale of property, plant and equipment. At 30 June 2013, other debtors of US$96.7 million (2012: US$77.6 million) were past due but not considered to be impaired. No specific collection issues have been identified with these receivables. An ageing of these receivables was as follows: Past due 0-30 days but not impaired Past due days but not impaired Past due days but not impaired Past 90 days but not impaired At 30 June 2013, there were no balances within other debtors that were considered to be impaired (2012: nil). No provision has been recognised (2012: nil). Refer to Note 30 for other financial instruments disclosures. NOTE 16. INVENTORIES US$m US$m Raw materials and consumables Work in progress Finished goods Brambles Annual Report Page 84

85 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 17. DERIVATIVE FINANCIAL INSTRUMENTS US$m US$m US$m US$m Current assets Current liabilities Interest rate swaps - cash flow hedges Interest rate swaps - fair value hedges Forward foreign exchange contracts - cash flow hedges Forward foreign exchange contracts - held for trading Embedded derivatives Non-current assets Non-current liabilities Interest rate swaps - cash flow hedges Interest rate swaps - fair value hedges Embedded derivatives Refer to Note 30 for other financial instruments disclosures. NOTE 18. OTHER ASSETS Current US$m US$m Prepayments Current tax receivable Non-current Prepayments Brambles Annual Report Page 85

86 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 19. INVESTMENTS A) JOINT VENTURES Brambles has investments in the following unlisted jointly controlled entities, which are accounted for using the equity method. % interest held at reporting date Place of June June Name (and nature of business) incorporation CISCO - Total Information Management Pte. Limited (Information management) Singapore 49% 49% Recall Becker GmbH & Co. KG (Document management services) Germany 50% 50% IFCO Japan Inc (RPC pooling business) Japan 33% 33% US$m US$m B) MOVEMENT IN CARRYING AMOUNT OF INVESTMENTS IN JOINT VENTURES At 1 July Share of results after income tax (Note 19C) Dividends received/receivable (3.5) (4.2) Foreign exchange differences 0.1 (1.0) At 30 June US$m US$m C) SHARE OF RESULTS OF JOINT VENTURES Trading revenue Expenses (21.0) (9.0) Profit from ordinary activities before tax Tax expense on ordinary activities (1.9) (1.2) Profit for the year D) SHARE OF ASSETS AND LIABILITIES OF JOINT VENTURES Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets E) SHARE OF COMMITMENTS AND CONTINGENT LIABILITIES OF JOINT VENTURES Contingent liabilities Capital commitments Lease commitments Total Brambles Annual Report Page 86

87 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 20. PROPERTY, PLANT AND EQUIPMENT Land and Plant and buildings equipment Total US$m US$m US$m At 1 July 2011 Cost , ,168.7 Accumulated depreciation (75.7) (2,814.0) (2,889.7) Net carrying amount , ,279.0 Year ended 30 June 2012 Opening net carrying amount , ,279.0 Additions Acquisition of subsidiaries Fair value adjustment of prior year acquisition - (51.1) (51.1) Disposals (2.8) (70.0) (72.8) Disposal of subsidiaries - (0.2) (0.2) Other transfers 11.2 (9.8) 1.4 Depreciation charge (9.0) (471.8) (480.8) Impairment of pooling equipment - (15.2) (15.2) Irrecoverable pooling equipment provision expense - (100.1) (100.1) Foreign exchange differences (14.6) (336.6) (351.2) Closing net carrying amount , ,138.6 At 30 June 2012 Cost , ,844.1 Accumulated depreciation (84.0) (2,621.5) (2,705.5) Net carrying amount , ,138.6 Year ended 30 June 2013 Opening net carrying amount , ,138.6 Additions Acquisition of subsidiaries Disposals (1.6) (88.6) (90.2) Depreciation charge (8.8) (484.1) (492.9) Impairment of pooling equipment - (1.5) (1.5) Irrecoverable pooling equipment provision expense - (101.5) (101.5) Foreign exchange differences 1.5 (7.5) (6.0) Closing net carrying amount , ,407.9 At 30 June 2013 Cost , ,369.7 Accumulated depreciation (90.1) (2,871.7) (2,961.8) Net carrying amount , ,407.9 The net carrying amounts above include plant and equipment held under finance lease US$22.7 million (2012: US$38.5 million); leasehold improvements US$22.6 million (2012: US$25.7 million); and capital work in progress US$45.7 million (2012: US$54.0 million). Brambles Annual Report Page 87

88 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 21. GOODWILL A) NET CARRYING AMOUNTS AND MOVEMENTS DURING THE YEAR At 1 July Carrying amount 1, ,694.3 Year ended 30 June Opening net carrying amount 1, ,694.3 Acquisition of subsidiaries Foreign exchange differences 6.5 (106.3) Closing net carrying amount 1, ,607.4 At 30 June Gross carrying amount 1, ,607.4 Accumulated impairment - - Net carrying amount 1, ,607.4 B) SEGMENT-LEVEL SUMMARY OF NET CARRYING AMOUNT Goodwill acquired through business combinations is allocated to cash generating units (CGU), which are the smallest identifiable groupings of Brambles' cash generating assets. A segment-level summary of the goodwill allocation is presented as follows: Pallets - Americas Pallets - EMEA Pallets - Asia-Pacific Pallets RPCs Containers Recall Total goodwill 1, ,607.4 C) RECOVERABLE AMOUNT TESTING - CONTINUING OPERATIONS The recoverable amount of goodwill is determined based on value in use calculations undertaken at the CGU level. The value in use is calculated using a discounted cash flow methodology covering a 10 year period with an appropriate terminal value at the end of that period. Based on the impairment testing, the carrying amounts of goodwill in the CGUs related to continuing operations at reporting date were fully supported. The key assumptions on which management has based its cash flow projections were: Cash flow forecasts Cash flow forecasts are based on the most recent financial projections covering a maximum period of five years. Cash flows beyond that period are extrapolated using estimated growth rates. Financial projections are based on assumptions that represent management's best estimates. Growth rates Average growth rates beyond the period covered in the financial projections were: Pallets - Americas 5.0%; RPCs 2.6%; Containers 4.8% and Recall 2.5% (2012: Pallets - Americas 2.7%; RPCs 2.5% and Recall 2.5%). They are based on management's expectations for future performance. Terminal value The terminal value calculated after year 10 is determined using the stable growth model, having regard to the weighted average cost of capital and terminal growth factor appropriate to each CGU. Discount rates Discount rates used are the pre-tax weighted average cost of capital (WACC) and include a premium for market risks appropriate to each country in which the CGU operates. WACCs ranged between 8.4% and 19.9% (average rates: Pallets - Americas 11.2%; RPCs 10.1%; Containers 9.7% and Recall 11.4%). WACCs for 2012 ranged between 9.7% and 21.2% (average rates: Pallets - Americas 11.5%; RPCs 10.0% and Recall 11.8%). Sensitivity Any reasonable change to the above key assumptions would not cause the carrying value of the CGU to materially exceed its recoverable amount. US$m US$m Brambles Annual Report Page 88

89 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 22. INTANGIBLE ASSETS Software Other 1 Total US$m US$m US$m At 1 July 2011 Gross carrying amount Accumulated amortisation (285.2) (116.6) (401.8) Net carrying amount Year ended 30 June 2012 Opening carrying amount Additions Acquisition of subsidiaries Disposals (0.3) (0.7) (1.0) Disposal of subsidiaries - (0.3) (0.3) Amortisation charge (30.9) (40.5) (71.4) Foreign exchange differences (1.7) (26.5) (28.2) Closing carrying amount At 30 June 2012 Gross carrying amount Accumulated amortisation (313.8) (144.5) (458.3) Net carrying amount Year ended 30 June 2013 Opening carrying amount Additions Acquisition of subsidiaries Disposals (2.1) (0.5) (2.6) Amortisation charge (23.3) (40.8) (64.1) Impairment charge (15.3) - (15.3) Foreign exchange differences Closing carrying amount At 30 June 2013 Gross carrying amount Accumulated amortisation (345.9) (175.8) (521.7) Net carrying amount Other intangible assets primarily comprise acquired customer relationships, customer lists and agreements. Brambles Annual Report Page 89

90 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 23. TRADE AND OTHER PAYABLES Current US$m US$m Trade payables GST/VAT, refundable deposits and other payables Accruals and deferred income , ,176.8 Non-current Other liabilities Trade payables and other current payables are non-interest bearing and are generally settled on day terms. Refer to Note 30 for other financial instruments disclosures. NOTE 24. BORROWINGS Current Unsecured: - bank overdraft bank loans loan notes accrued interest on loan notes 2,3,4, finance lease liabilities (Note 32) other loans Non-current Unsecured: - bank loans , loan notes 2,3,4,5,6 1, , finance lease liabilities (Note 32) other loans , ,777.7 Total borrowings 2, , Unsecured bank loans include the following: (i) revolving loans in various currencies priced off LIBOR and drawn under multi-currency global banking facilities with a range of maturities out to November 2017; and (ii) various regional banking facilities providing local currency funding to certain subsidiaries. Included in bank loans are borrowings of US$456.2 million (2012: US$436.0 million) which have been designated as a hedge of the net investment in Brambles' European subsidiaries and are being used to partially hedge Brambles' exposure to foreign exchange risks on these investments. 2 Notes issued in August 2004 in respect of US$425.0 million US private placement of which US$171.0 million was redeemed in August The terms of the outstanding notes are (i) Series B US$157.5 million 5.77% Guaranteed Senior Unsecured Notes due 4 August 2014 and (ii) Series C US$96.5 million 5.94% Guaranteed Senior Unsecured Notes due 4 August Notes issued in May 2009 in respect of US$110.0 million US private placement. The terms of the note are (i) Series A US$35.0 million 7.29% Guaranteed Senior Unsecured Notes due 7 May 2014; (ii) Series B US$55.0 million 7.83% Guaranteed Senior Unsecured Notes due 7 May 2016; and (iii) Series C US$20.0 million 8.23% Guaranteed Senior Unsecured Notes due 7 May Notes issued in March 2010 to qualified institutional buyers in accordance with Rule 144A and Regulation S of the United States Securities Act. The terms of the notes are (i) US$250.0 million 3.95% Guaranteed Senior Notes due 1 April 2015; and (ii) US$500.0 million 5.35% Guaranteed Senior Notes due 1 April US$450.0 million of loan notes have been hedged with interest rate swaps for fair value risk. In accordance with AASB 139, the carrying value of the notes have been adjusted to increase debt by US$17.1 million (2012: US$25.1 million) in relation to changes in fair value attributable to the hedged risk. 6 Notes issued in April 2011 in the European bond market in respect of million of 4.625% Guaranteed Senior Notes due 20 April Refer to Note 30 for other financial instruments disclosures Brambles Annual Report Page 90

91 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 24. BORROWINGS - CONTINUED US$m US$m A) BORROWING FACILITIES AND CREDIT STANDBY ARRANGEMENTS Total facilities: - committed borrowing facilities 2, , loan notes 1, , credit standby/uncommitted/overdraft arrangements , ,249.7 Facilities used at reporting date: 1 - committed borrowing facilities , loan notes 1, , credit standby/uncommitted/overdraft arrangements , ,825.2 Facilities available at reporting date: - committed borrowing facilities 1, , credit standby/uncommitted/overdraft arrangements , ,424.5 Funding is generally sourced from relationship banks and debt capital market investors on a medium to long term basis. The expiry dates of committed borrowing facilities range out to November 2017 with loan notes having maturities out to April The average term to maturity of the committed borrowing facilities and the loan notes is equivalent to 3.6 years (2012: 3.7 years). These facilities are unsecured and are guaranteed as described in Note 38B. B) BORROWING FACILITIES MATURITY PROFILE US$m Total Facilities Facilities Maturity Type facilities used 1 available 2013 Less than 1 year Bank loans/loan notes/overdrafts/finance leases/other loans years Bank loans/loan notes/finance leases/other loans years Bank loans/loan notes/finance leases years Bank loans/loan notes/finance leases years Bank loans/loan notes Over 5 years Loan notes , , , Less than 1 year Bank loans/overdrafts/finance leases/other loans years Bank loans/loan notes/finance leases/other loans 1, years Bank loans/loan notes/finance leases years Bank loans/loan notes/finance leases years Bank loans/loan notes/finance leases Over 5 years Loan notes 1, , , , ,424.5 Facilities used represents the principal value of loan notes and borrowings drawn against the relevant facilities to reflect the correct amount of funding headroom. This amount differs by US$31.4 million (2012: US$38.9 million) from loan notes and borrowings as shown in the balance sheet which are measured on the basis of amortised cost as determined under the effective interest method and include accrued interest, transaction costs and fair value adjustments on certain hedging instruments. Brambles Annual Report Page 91

92 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 25. PROVISIONS Employee Business entitlements disposals Other Total US$m US$m US$m US$m At 1 July 2012 Current Non-current Charge to income statement Additional provisions Utilisation of provision (45.1) (0.4) (20.9) (66.4) Acquisition of subsidiaries Currency variations (2.2) - (0.7) (2.9) At 30 June Current Non-current Employee entitlements provision comprises US$20.4 million (2012: US$19.8 million) for long service leave, US$2.3 million (2012: US$1.8 million) for phantom shares and US$71.0 million (2012: US$53.9 million) for bonuses and other employee-related obligations (other than those resulting from pension plans). None of these amounts related to phantom shares which had vested at reporting date. US$11.6 million (2012: US$10.8 million) of the long service leave provision has been recognised as current as it is expected to be settled within one year from reporting date. The remaining balance of long service leave of US$8.8 million (2012: US$9.0 million) is expected to settle within the next two to ten years and has been discounted to present value. Business disposals provision is in respect of divestments completed in 2007 and prior years. Other provisions comprise US$22.8 million (2012: US$36.4 million) for restructuring and integration costs, US$12.0 million (2012: US$6.1 million) for litigation and customer disputes and US$6.0 million (2012: nil) for other known exposures. Brambles Annual Report Page 92

93 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 26. RETIREMENT BENEFIT OBLIGATIONS A) DEFINED CONTRIBUTION PLANS Brambles operates a number of defined contribution retirement benefit plans for qualifying employees. The assets of these plans are held in separately administered trusts or insurance policies. In some countries, Brambles employees are members of state-managed retirement benefit plans. Brambles is required to contribute a specified percentage of payroll costs to the retirement benefit plan to fund benefits. The only obligation of Brambles with respect to defined contribution retirement benefit plans is to make the specified contributions. US$25.4 million (2012: US$23.6 million) representing contributions paid and payable to these plans by Brambles at rates specified in the rules of the plans relating to continuing operations has been recognised as an expense in the income statement. B) DEFINED BENEFIT PLANS Brambles operates a number of defined benefit pension plans, which are closed to new entrants. The majority of the plans are selfadministered and the plans assets are held independently of Brambles' finances. Under the plans, members are entitled to retirement benefits based upon a percentage of final salary. No other post-retirement benefits are provided. The plans are funded plans. During 2012, four plans operating in the United Kingdom, Ireland and South Africa were closed to future accrual. One plan in the United Kingdom retained the link between benefits and salary for members still in employment, but for the others the link was broken. In South Africa, the retirement obligations changed from defined benefit to defined contribution for all members still in employment. The plan assets and the present value of the defined benefit obligation recognised in Brambles' balance sheet are based upon the most recent formal actuarial valuations which have been updated to 30 June 2013 by independent professionally qualified actuaries and take account of the requirements of AASB 119. The present value of the defined benefit obligation and the past service cost were measured using the projected unit credit method. In addition to the principal defined benefit plans included in disclosures below, Brambles has a number of other arrangements in several countries that are either defined benefit pension plans or have certain defined benefit characteristics. Each of these arrangements has been assessed as immaterial separately and in aggregate and they have not been subjected to an independent AASB 119 valuation. C) BALANCE SHEET AMOUNTS The amounts recognised in Brambles' balance sheet in respect of defined benefit plans were as follows: Present value of defined benefit obligations US$m US$m Fair value of plan assets (206.1) (190.7) Net liability recognised in the balance sheet Brambles has no legal obligation to settle this liability with an immediate contribution or additional one-off contributions. Brambles intends to continue to make contributions to the plans at the rates recommended by the funds' actuaries. Refer Note 26(I). D) INCOME STATEMENT AMOUNTS The amounts recognised in Brambles' income statement in respect of defined benefit plans were as follows: Current service cost Interest cost Past service cost (2.2) 6.1 Expected return on plan assets (9.6) (10.1) Changes arising from curtailments and settlements - (0.2) Net (benefit)/expense included in employment cost (Note 7) (1.3) 8.2 E) STATEMENT OF COMPREHENSIVE INCOME Actuarial (losses)/gains reported in the consolidated statement of comprehensive income (11.1) (19.7) Cumulative actuarial losses recognised (35.2) (24.1) Brambles Annual Report Page 93

94 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 26. RETIREMENT BENEFIT OBLIGATIONS - CONTINUED F) DEFINED BENEFIT OBLIGATION Changes in the present value of the defined benefit obligation were as follows: US$m US$m At 1 July Current service cost Past service cost (2.2) 6.1 Interest cost Contributions from plan members Actuarial gains and losses Currency variations Benefits paid (11.3) (19.3) (8.2) (6.7) Curtailments - (0.2) Acquisition of subsidiaries Defined contribution movements At 30 June In 2012, a portion of the defined benefit obligation and assets in the South African pension plan was re-designated as defined contribution. The defined contribution movements comprise employer contributions paid and expensed of US$1.5 million (2012: US$1.2 million), investment returns of US$2.1 million (2012: US$1.7 million) and other movements of US$0.3 million (2012: US$0.2 million), offset by benefits paid of US$2.8 million (2012: nil). G) PLAN ASSETS Assets held in the plans fell within the following categories: Fair value Fair value US$m % US$m % Equities Bonds/gilts Insurance bonds Cash Other Changes in the fair value of the plan assets were as follows: US$m US$m At 1 July Expected return on plan assets Actuarial gains and losses 6.0 (5.5) Currency variations (11.1) (19.0) Contributions from sponsoring employers Contributions from plan members Benefits paid (8.2) (6.7) Defined contribution movements At 30 June The actual return on plan assets was US$15.6 million (2012: US$4.6 million). Brambles Annual Report Page 94

95 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 26. RETIREMENT BENEFIT OBLIGATIONS - CONTINUED H) PRINCIPAL ACTUARIAL ASSUMPTIONS Principal actuarial assumptions (expressed as weighted averages) used in determining Brambles' defined benefit obligations were: Europe other South UK than UK Africa At 30 June 2013 Rate of increase in salaries 2.3% 3.3% - Rate of increase in pensions 3.7% 2.7% 6.0% Discount rate 4.7% 3.2% 7.4% Retail price inflation 2.6% 2.0% 6.0% Return on equities 8.0% 6.5% - Return on bonds 4.2% 3.1% - Return on cash 1.0% 1.3% 5.5% At 30 June 2012 Rate of increase in salaries 2.0% 3.3% 8.0% Rate of increase in pensions 3.4% 2.7% 6.0% Discount rate 4.8% 3.2% 8.0% Retail price inflation 2.1% 2.0% 6.0% Return on equities 8.0% 6.8% - Return on bonds 4.8% 3.4% - Return on cash 1.0% 2.0% 5.5% The expected return on plan assets is based on market expectations at the beginning of the period for returns over the entire life of the benefit obligation. I) EMPLOYER CONTRIBUTIONS Employer contributions to the main defined benefit plans as a percentage of pensionable pay ceased from 1 October 2011 when the plans closed to future accrual. The obligation to contribute to the various defined benefit plans is covered by trust deeds and/or legislation. Funding levels and contributions for these plans are based on actuarial advice. Comprehensive actuarial valuations are made at no more than three yearly intervals. Additional annual contributions of US$4.4 million (2012: US$4.5 million) are being paid to remove the identified deficits over a period of 9 years. Contributions paid to the plans during 2013 were US$18.0 million (2012: US$6.2 million), all of which related to continuing operations. It is estimated that the amount of contributions to be paid to the plans during 2014 will be US$6.3 million. Brambles Annual Report Page 95

96 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 26. RETIREMENT BENEFIT OBLIGATIONS - CONTINUED J) HISTORICAL SUMMARY US$m US$m US$m US$m US$m The history of the defined benefit plan deficit at the end of each year is as follows: - plan liabilities (257.3) (249.5) (239.6) (211.1) (196.0) - plan assets Net liability recognised in the balance sheet (51.2) (58.8) (37.4) (50.4) (50.8) The history of favourable/(unfavourable) experience adjustments made in each year is as follows: - on plan liabilities (17.1) (14.2) 2.2 (19.3) on plan assets 6.0 (5.5) (26.3) Net favourable/(unfavourable) adjustment (11.1) (19.7) 13.9 (5.9) (2.9) NOTE 27. CONTRIBUTED EQUITY Shares US$m Total ordinary shares, of no par value, issued and fully paid: At 1 July ,479,367,454 14,370.2 Issued during the year 56,692, Capital reduction - (8,223.4) At 30 June ,536,059,936 6,484.1 At 1 July ,536,059,936 6,484.1 Issued during the year 21,307, At 30 June ,557,367,436 6,618.5 Ordinary shares of Brambles Limited entitle the holder to participate in dividends and the proceeds on any winding up of the Company in proportion to the number of shares held. The 21,307,500 shares issued during the year include 19,055,210 new shares issued on 10 July 2012 under the retail component of the fully underwritten 1 for 20 pro rata accelerated renounceable entitlement offer, raising US$117.4 million, net of transaction costs. Brambles Annual Report Page 96

97 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 28. SHARE-BASED PAYMENTS The Remuneration Report sets out details relating to the Brambles share plans (pages 46 to 48), together with details of performance share rights and MyShare matching conditional rights issued to the Executive Director and other Key Management Personnel (pages 42 to 43). Rights granted by Brambles do not result in an entitlement to participate in share issues of any other corporation. Set out below are summaries of rights granted under the plans. A) GRANTS OVER BRAMBLES LIMITED SHARES ISSUED SUBSEQUENT TO UNIFICATION Granted Exercised Forfeited/ Balance during during lapsed during Balance Grant date Expiry date at 1 July the year the year the year at 30 June 2013 Performance share rights 19 Jan Aug ,995 - (48,995) Aug Aug ,021 - (97,696) - 41, Apr Apr , , Aug Aug ,259 - (114,269) - 90, Nov Nov ,145,779 - (1,347,975) (1,656,998) 140, Apr Apr , , Nov Nov ,076, (293,533) 3,783, Feb Feb , , Mar Jun , , Sep Sep ,324,665 - (32,305) (527,015) 3,765, Nov Nov , , Nov Nov , , Jun Jun , , Jul Sep , , Sep Sep ,081,191 - (259,370) 2,821, Oct Oct ,113 (77,906) - 328,207 MyShare matching conditional rights 2011 Plan Year 31 Mar ,988 - (516,150) (37,838) Plan Year 31 Mar , ,724 (17,782) (72,023) 688, Plan Year 31 Mar ,291 (895) (3,644) 248,752 Total rights 13,637,036 4,340,319 (2,253,973) (2,850,421) 12,872, (summarised) Total rights 12,288,815 5,342,039 (1,632,837) (2,360,981) 13,637,036 Of the above grants, 277,871 rights were exercisable at 30 June Weighted average data: fair value at grant date of grants made during the year A$ share price at exercise date of grants exercised during the year A$ remaining contractual life at 30 June years There were 63,677 grants, 77,967 exercises and 1,137,657 forfeits in performance share rights and MyShare matching conditional rights over Brambles Limited shares between the end of the financial year and 20 August Brambles Annual Report Page 97

98 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 28. SHARE-BASED PAYMENTS - CONTINUED B) FAIR VALUE CALCULATIONS The fair value of equity-settled performance share rights and MyShare matching conditional rights was determined as at grant date, using a binomial valuation methodology. The values calculated do not take into account the probability of rights being forfeited prior to vesting, as a probability adjustment is made when computing the share-based payment expense. The significant inputs into the valuation models for the equity-settled grants made during the year were: Grants Grants Weighted average share price A$7.02 A$6.44 Expected volatility 25% 30% Expected life 2-3 years 2-3 years Annual risk-free interest rate % % Expected dividend yield 4.00% 4.00% The expected volatility was determined based on a four-year historic volatility of Brambles' share prices. C) SHARE-BASED PAYMENT EXPENSE - CONTINUING OPERATIONS Brambles recognised a total expense of US$ million (2012: US$ million) relating to share-based payments, all within continuing operations. Of this amount, US$1.672 million related to phantom share provisions (2012: US$1.908 million). Brambles Annual Report Page 98

99 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 29. RESERVES AND RETAINED EARNINGS US$m US$m Reserves (6,748.2) (6,689.1) Retained earnings 3, ,945.4 A) MOVEMENTS IN RESERVES AND RETAINED EARNINGS Year ended 30 June 2012 (3,593.1) (3,743.7) Reserves Share- Foreign based currency Retained Hedging payment translation Unification Other Total earnings US$m US$m US$m US$m US$m US$m US$m Opening balance (4.8) (15,385.8) (14,716.8) 2,797.6 Actuarial loss on defined benefit plans (14.3) FCTR released to profits during the year - - (12.5) - - (12.5) - FCTR on entities disposed taken to profit - - (1.7) - - (1.7) - Foreign exchange differences - - (192.5) - - (192.5) - Cash flow hedges: - transfers to net profit tax on transfers to net profit (1.7) (1.7) - Share-based payments: - expense recognised during the year shares issued - (11.1) (11.1) - - equity component of related tax Capital reduction , , Dividends declared (414.2) Net profit for the year Closing balance (1.4) (7,162.4) (6,689.1) 2,945.4 Year ended 30 June 2013 Opening balance (1.4) (7,162.4) (6,689.1) 2,945.4 Actuarial loss on defined benefit plans (8.7) Foreign exchange differences - - (70.7) - - (70.7) - Cash flow hedges: - fair value losses (1.4) (1.4) - - tax on fair value losses transfers to net profit transfers to property, plant and equipment tax on transfers to net profit (1.2) (1.2) - Share-based payments: - expense recognised during the year shares issued - (17.1) (17.1) - - equity component of related tax Dividends declared (422.2) Net profit for the year Closing balance (0.3) (7,162.4) (6,748.2) 3,155.1 Brambles Annual Report Page 99

100 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 29. RESERVES AND RETAINED EARNINGS - CONTINUED B) NATURE AND PURPOSE OF RESERVES Hedging reserve This comprises the cumulative portion of the gain or loss of cash flow hedges that are determined to be effective hedges. Amounts are recognised in the income statement when the associated hedged transaction is recognised or the hedge or a portion thereof becomes ineffective. Share-based payments reserve This comprises the cumulative share-based payment expense recognised in the income statement in relation to equity-settled options and share rights issued but not yet exercised. Refer to Note 28 for further details. Foreign currency translation reserve This comprises cumulative exchange differences arising from the translation of the financial statements of foreign subsidiaries, net of qualifying net investment hedges. The relevant accumulated balance is recognised in the income statement on disposal of a foreign subsidiary. Unification reserve On Unification, Brambles Limited issued shares on a one-for-one basis to those Brambles Industries Limited (BIL) and Brambles Industries plc (BIP) shareholders who did not elect to participate in the Cash Alternative. The Unification reserve of US$15,385.8 million was established on 4 December 2006, representing the difference between the Brambles Limited share capital measured at fair value and the carrying value of the share capital of BIL and BIP at that date. In the consolidated financial statements, the reduction in share capital of US$8,223.4 million on 9 September 2011 by the parent entity in accordance with section 258F of the Corporations Act 2001 was applied against the Unification reserve. Other This comprises a merger reserve created in 2001 and a capital redemption reserve created in Brambles Annual Report Page 100

101 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 30. FINANCIAL RISK MANAGEMENT Brambles is exposed to a variety of financial risks: market risk (including the effect of fluctuations in interest rates and exchange rates), liquidity risk and credit risk. Brambles' overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of Brambles. Brambles uses standard derivative financial instruments to manage its risk exposure in the normal course of business. Brambles does not trade in financial instruments for speculative purposes. Hedging activities are conducted through Brambles' Treasury department on a centralised basis in accordance with Board policies and guidelines through standard operating procedures and delegated authorities. Policies with respect to financial risk management and hedging activities are discussed below and should be read in conjunction with detailed information contained in the Operational & Financial Review on pages 3 to 4. A) FAIR VALUES Set out below is a comparison by category of the carrying amounts and fair values of financial instruments recognised in the balance sheet. With the exception of loans and receivables and derivatives designated as hedging instruments, all financial assets are classified as financial assets at fair value through profit or loss. Carrying amount Fair value US$m US$m US$m US$m Financial assets - cash at bank and in hand (Note 14) short term deposits (Note 14) trade receivables (Note 15) interest rate swaps (Note 17) embedded derivatives (Note 17) forward foreign currency contracts (Note 17) Financial liabilities - trade payables (Note 23) bank overdrafts (Note 24) bank loans (Note 24) , , loan notes (Note 24) 1, , , , finance lease liabilities (Note 24) other loans (Note 24) interest rate swaps (Note 17) forward foreign currency contracts (Note 17) Brambles Annual Report Page 101

102 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 30. FINANCIAL RISK MANAGEMENT - CONTINUED A) FAIR VALUES - CONTINUED Brambles uses the following methods in estimating the fair values of financial instruments: - Level 1 - the fair value is calculated using quoted prices in active markets; - Level 2 - the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); or - Level 3 - the fair value is estimated using inputs for the asset or liability that are not observable market data. The table below sets out the fair values and methods used to estimate the fair value of derivatives designated as hedging instruments Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total US$m US$m US$m US$m US$m US$m US$m US$m Derivative financial assets - interest rate swaps embedded derivatives forward foreign currency contracts Derivative financial liabilities - interest rate swaps forward foreign currency contracts The fair values of derivatives designated as hedging instruments are determined using valuation techniques that are based on observable market data. For forward foreign exchange contracts, the net fair value is taken to be the unrealised gain or loss at balance date calculated by reference to the current forward rates for contracts with similar maturity dates. Fair value for other financial assets and liabilities has been calculated by discounting future cash flows at prevailing interest rates for the relevant yield curve. Brambles Annual Report Page 102

103 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 30. FINANCIAL RISK MANAGEMENT - CONTINUED B) MARKET RISK Brambles has the following risk policies in place with respect to market risk. Interest rate risk Brambles' exposure to potential volatility in finance costs, predominantly US dollars and euros, is managed by maintaining a mix of fixed and floating-rate instruments within select target bands over defined periods. In most cases, interest rate derivatives are used to achieve these targets synthetically. The following table sets out the financial instruments exposed to interest rate risk at reporting date: Financial assets (floating rate) Cash at bank Short term deposits US$m US$m Weighted average effective interest rate 0.8% 1.1% Financial liabilities (floating rate) Bank overdrafts Bank loans ,022.3 Interest rate swaps (notional value) - cash flow hedges (50.0) (200.0) Interest rate swaps (notional value) - fair value hedges Net exposure to cash flow interest rate risk 1, ,293.8 Weighted average effective interest rate 1.9% 2.3% Financial liabilities (fixed rate) Loan notes 1, ,775.4 Finance lease liabilities Other loans Interest rate swaps (notional value) - cash flow hedges Interest rate swaps (notional value) - fair value hedges (450.0) (450.0) Net exposure to fair value interest rate risk 1, ,570.3 Weighted average effective interest rate 5.4% 5.3% Interest rate swaps - cash flow hedges Brambles enters into various interest rate risk management transactions for the purpose of managing finance costs to achieve more stable and predictable finance expense results. The instruments primarily used are interest rate swaps. During 2013, Brambles entered into or maintained interest rate swap transactions with various banks hedging variable rate borrowings in US dollars. The purpose of the interest rate swaps was to hedge variable interest expense under borrowings against rising interest rates. Interest rate swaps achieve this by synthetically converting the variable interest rate payment into a fixed interest liability on the dates on which interest is payable on the underlying debt. The fair value of these contracts at reporting date was US$(0.5) million (2012: US$(3.8) million). The terms of the contracts have been negotiated to match the projected drawdowns and rollovers of variable rate bank debt. Brambles Annual Report Page 103

104 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 30. FINANCIAL RISK MANAGEMENT - CONTINUED B) MARKET RISK - CONTINUED Interest rate swaps - fair value hedges Brambles has entered into interest rate swap transactions with various banks swapping US$450.0 million of the US$750.0 million 144A bonds to variable rate. The fair value of these contracts at reporting date was US$19.5 million (2012: US$27.3 million). The terms of the swaps match the terms of the fixed rate bond issue for the amounts and durations being hedged. The gain or loss from re-measuring the interest rate swaps at fair value is recorded in the income statement together with any changes in the fair value of the hedged asset or liability that is attributed to the hedged risk. For 2013, all interest rate swaps were effective hedging instruments. Sensitivity analysis The following table sets out the sensitivity of Brambles' financial assets and financial liabilities to interest rate risk applying the following assumptions: Interest rate risk lower rates higher rates lower rates higher rates US dollar interest rates - 25 bps + 75 bps - 25 bps + 75 bps Australian dollar interest rates - 50 bps + 75 bps - 50 bps + 75 bps Sterling interest rates - 25 bps + 75 bps - 25 bps + 75 bps Euro interest rates - 25 bps + 75 bps - 25 bps + 75 bps US$m US$m US$m US$m Impact on profit after tax 1.9 (7.5) 1.9 (6.8) Impact on equity (0.1) Based on financial instruments held at 30 June 2013, if interest rates were to parallel shift by the number of basis points in the different currencies noted above with all other variables held constant, profit after tax for the year would have been US$1.9 million higher or US$7.5 million lower (2012: US$1.9 million higher or US$6.8 million lower), mainly as a result of lower/higher interest expense on bank borrowings. The impact on equity would have been US$0.1 million lower or US$0.2 million higher (2012: US$nil million or US$0.1 million higher) mainly as a result of the incremental movement through the hedging reserve relating to the effective portion of cash flow hedges. Given its geographically diverse operations, Brambles had interest rate exposure positions against a variety of currencies, predominantly US dollars and euros. Brambles Annual Report Page 104

105 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 30. FINANCIAL RISK MANAGEMENT - CONTINUED B) MARKET RISK - CONTINUED Foreign exchange risk Exposure to foreign exchange risk generally arises in transactions affecting either the value of transactions translated back to the functional currency of a subsidiary or affecting the value of assets and liabilities of overseas subsidiaries when translated back to the Group's reporting currency. Foreign exchange hedging is used when a transaction exposure exceeds certain thresholds and as soon as a defined exposure arises. Currency profile The following table sets out the currency mix profile of Brambles' financial instruments at reporting date: US Aust. dollar dollar Sterling Euro Other Total US$m US$m US$m US$m US$m US$m 2013 Financial assets - cash at bank and in hand short term deposits interest rate swaps embedded derivatives forward foreign currency contracts Financial liabilities - bank overdrafts bank loans loan notes 1, , finance lease liabilities other loans interest rate swaps forward foreign currency contracts net investment hedge , , , Financial assets - cash at bank and in hand short term deposits interest rate swaps embedded derivatives forward foreign currency contracts Financial liabilities - bank overdrafts bank loans loan notes 1, , finance lease liabilities other loans interest rate swaps forward foreign currency contracts net investment hedge , , ,411.7 Brambles Annual Report Page 105

106 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 30. FINANCIAL RISK MANAGEMENT - CONTINUED B) MARKET RISK - CONTINUED Forward foreign exchange contracts - cash flow hedges Brambles enters into forward foreign exchange contracts to hedge currency exposures arising from normal commercial transactions such as the purchase and sale of equipment and services, intercompany interest and royalties. During 2013, Brambles entered into forward foreign exchange transactions with various banks in a variety of cross-currencies for terms ranging up to 4 months. Most contracts create an obligation on Brambles to take receipt of or deliver a foreign currency which is used to fulfil the foreign currency sale or purchase order. The gain or loss from re-measuring the foreign exchange contracts at fair value is deferred and recognised in the hedging reserve in equity to the extent that the hedge is effective and reclassified into profit and loss when the hedged item is recognised. Any ineffective portion is charged to the income statement. For 2013 and 2012, all foreign exchange contracts were effective hedging instruments. Foreign exchange contracts are fair valued by comparing the contracted rate to the current market rate for a contract with the same remaining period to maturity. The fair value of these contracts at reporting date was US$0.3 million (2012: nil). Other forward foreign exchange contracts Brambles enters into other forward foreign exchange contracts for the purpose of hedging various cross-border intercompany loans to overseas subsidiaries. In this case, the forward foreign exchange contract provides an economic hedge against exchange fluctuations in the foreign currency loan balance. The face value and terms of the foreign exchange contracts match the intercompany loan balances. Gains and losses on realignment of the intercompany loan and foreign exchange contracts to spot rates are offset in the income statement. Consequently, these foreign exchange contracts are not designated for hedge accounting purposes and are classified as held for trading. These contracts are fair valued by comparing the contracted rate to the current market rate for a contract with the same remaining period to maturity. Any changes in fair values are taken to the income statement immediately. The fair value of these contracts at reporting date was US$(8.6) million (2012: US$(1.8) million). Hedge of net investment in foreign entity Included in bank loans at 30 June 2013 is a borrowing of US$456.2 million (2012: US$436.0 million) denominated in euros. This loan has been designated as a hedge of the net investment in Brambles' European subsidiaries and is being used to partially hedge Brambles' exposure to foreign exchange risks on these investments. For 2013 and 2012, there was no ineffectiveness to be recorded from such partial hedges of net investments in foreign entities. Sensitivity analysis The following table sets out the sensitivity of Brambles' financial assets and financial liabilities to foreign exchange risk (transaction exposures only): Foreign exchange risk lower rates higher rates lower rates higher rates Exchange rate movement -10% +10% -10% +10% US$m US$m US$m US$m Impact on profit after tax 0.4 (0.4) 0.1 (0.1) Impact on equity (31.9) 31.9 (30.5) 30.5 Based on the financial instruments held at 30 June 2013, if exchange rates were to weaken/strengthen by 10% with all other variables held constant, profit after tax for the year would have been US$0.4 million higher/lower (2012: US$0.1 million higher/lower). The impact on equity would have been US$31.9 million lower/higher (2012: US$30.5 million lower/higher) as a result of the incremental movement through the foreign currency translation reserve relating to the effective portion of a net investment hedge. Brambles Annual Report Page 106

107 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 30. FINANCIAL RISK MANAGEMENT - CONTINUED C) LIQUIDITY RISK Brambles' objective is to maintain adequate liquidity to meet its financial obligations as and when they fall due. Brambles funds its operations through existing equity, retained cash flow and borrowings. Funding is generally sourced from relationship banks and debt capital market investors on a medium to long term basis. Bank credit facilities are generally structured on a committed multi-currency revolving basis and at balance date had maturities ranging out to November Borrowings under the bank credit facilities are floating-rate, unsecured obligations with covenants and undertakings typical for these types of arrangements. Borrowings are raised from debt capital markets by the issue of unsecured fixed interest notes, with interest payable semi-annually or annually. Brambles also has access to further funding through overdrafts, uncommitted and standby lines of credit, principally to manage day-to-day liquidity. To minimise foreign exchange risks, borrowings are arranged in the currency of the relevant operating asset to be funded. Refer to Note 24A for borrowing facilities and credit standby arrangements disclosures. Maturities of derivative financial assets and liabilities The maturity of Brambles' contractual cash flows on net and gross settled derivative financial instruments, based on the remaining period to contractual maturity date, is presented below. Cash flows on interest rate swaps and forward foreign exchange contracts are valued based on forward interest rates applicable at reporting date Net settled Interest rate swaps Year 1 Year 2 Year 3 Year 4 Over 4 years Total contractual cash flows Carrying amount assets/ (liabilities) US$m US$m US$m US$m US$m US$m US$m - cash flow hedges (0.5) (0.5) (0.5) - fair value hedges Gross settled Forward foreign exchange contracts - inflow (outflow) (478.8) (478.8) (8.3) Net settled Interest rate swaps - cash flow hedges (3.0) (0.8) (3.8) (3.8) - fair value hedges Gross settled Forward foreign exchange contracts - inflow (outflow) (543.8) (543.8) (1.8) Brambles Annual Report Page 107

108 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 30. FINANCIAL RISK MANAGEMENT - CONTINUED C) LIQUIDITY RISK - CONTINUED Maturities of non-derivative financial liabilities The maturity of Brambles' contractual cash flows on non-derivative financial liabilities, based on the remaining period to contractual maturity date, for principal and interest, is presented below. Refer to Note 24B for borrowing facilities maturity profile Financial liabilities Year 1 Year 2 Year 3 Year 4 Over 4 years Total contractual cash flows Carrying amount US$m US$m US$m US$m US$m US$m US$m Trade payables Bank overdrafts Bank loans , Loan notes , , ,796.3 Finance lease liabilities Other loans , , ,312.3 Financial guarantees , , , Financial liabilities Trade payables Bank overdrafts Bank loans , ,022.3 Loan notes , , ,775.4 Finance lease liabilities Other loans , , ,322.6 Financial guarantees , , , Refer to Note 33A for details on financial guarantees. The amounts disclosed above are the maximum amounts allocated to the earliest period in which the guarantee could be called. Brambles does not expect these payments to eventuate. Brambles Annual Report Page 108

109 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 30. FINANCIAL RISK MANAGEMENT - CONTINUED D) CREDIT RISK EXPOSURE Brambles is exposed to credit risk on its financial assets, which comprise cash and cash equivalents, trade and other receivables and derivative financial instruments. The exposure to credit risks arises from the potential failure of counterparties to meet their obligations. The maximum exposure to credit risk at the reporting date is the carrying amount of the financial instruments as set out in Note 30A. There is no significant concentration of credit risk. Brambles trades only with recognised, creditworthy third parties. Collateral is generally not obtained from customers. Customers are subject to credit verification procedures including an assessment of their independent credit rating, financial position, past experience and industry reputation. Credit limits are set for individual customers and approved by credit managers in accordance with an approved authority matrix. These credit limits are regularly monitored and revised based on historic turnover activity and credit performance. In addition, overdue receivable balances are monitored and actioned on a regular basis. Exposure to credit risk also arises from amounts receivable from unrealised gains on derivative financial instruments. At the reporting date, this amount was US$20.2 million (2012: US$27.5 million). Brambles transacts derivatives with prominent financial institutions and has credit limits in place to limit exposure to any potential non-performance by its counterparties. E) CAPITAL RISK MANAGEMENT Brambles objective when managing capital is to ensure Brambles continues as a going concern as well as to provide a balance between financial flexibility and balance sheet efficiency. In determining its capital structure, Brambles considers the robustness of future cash flows, potential funding requirements for growth opportunities and acquisitions, the cost of capital and ease of access to funding sources. Brambles manages its capital structure to be consistent with a solid investment grade credit. At 30 June 2013, Brambles held investment grade credit ratings of BBB+ from Standard and Poor's and Baa1 from Moody's Investor Services. Initiatives available to Brambles to achieve its desired capital structure include adjusting the amount of dividends paid to shareholders, returning capital to shareholders, buying-back share capital, issuing new shares, selling assets to reduce debt and varying the maturity profile of its borrowings. Brambles considers its capital to comprise: US$m US$m Total borrowings 2, ,864.1 Less: cash and cash equivalents (128.9) (174.2) Net debt 2, ,689.9 Total equity 3, ,740.4 Total capital 5, ,430.3 Brambles has a financial policy to target a net debt to EBITDA ratio of less than 1.75 to 1. Brambles is compliant with this financial policy at 30 June Brambles Annual Report Page 109

110 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 30. FINANCIAL RISK MANAGEMENT - CONTINUED E) CAPITAL RISK MANAGEMENT - CONTINUED Under the terms of its major borrowing facilities, Brambles is required to comply with the following financial covenants: - - the ratio of net debt to EBITDA is to be no more than 3.5 to 1; and the ratio of EBITDA to net finance costs is to be no less than 3.5 to 1. Brambles has complied with these financial covenants for 2013 and prior years. At balance date, based on the definitions below, the ratios were: US$m US$m Total borrowings 2, ,864.1 Less: fair value adjustments due to hedge accounting (17.1) (25.1) Less: cash and cash equivalents (128.9) (174.2) Net debt 2, ,664.8 EBITDA 1, ,556.4 Net finance costs Net debt/ebitda (times) EBITDA/net finance cost (times) The following definitions apply in the calculation of these financial covenants: - EBITDA means Brambles consolidated operating profit (excluding Significant items outside the ordinary course of business) before depreciation, amortisation, impairment, profit of joint ventures and associates and certain fair value adjustments in respect of financial derivatives; and - net debt means Brambles' consolidated total borrowings, excluding the impact of fair value adjustments in relation to hedge accounting, less cash and cash equivalents. Brambles Annual Report Page 110

111 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 31. CASH FLOW STATEMENT - ADDITIONAL INFORMATION A) RECONCILIATION OF CASH US$m US$m For the purpose of the cash flow statement, cash comprises: Cash at bank and in hand (Note 14) Short term deposits (Note 14) Bank overdraft (Note 24) (53.9) (21.5) B) RECONCILIATION OF PROFIT AFTER TAX TO NET CASH FLOWS FROM OPERATING ACTIVITIES Profit after tax Adjustments for: - depreciation and amortisation irrecoverable pooling equipment provision expense net gains on disposals of property, plant and equipment (16.5) (14.3) - impairment of software and property, plant and equipment other valuation adjustments (18.3) (0.1) - joint ventures (2.8) (1.4) - equity-settled share-based payments finance revenues and costs (4.8) (6.4) Movements in operating assets and liabilities, net of acquisitions and disposals: - increase in trade and other receivables (56.7) (123.1) - increase in prepayments (5.9) (4.0) - (increase)/decrease in inventories (4.2) increase in deferred taxes increase in trade and other payables increase/(decrease) in tax payables 27.6 (49.8) - increase/(decrease) in provisions 11.8 (33.8) - other (0.2) (4.7) Net cash inflow from operating activities 1, ,089.2 Brambles Annual Report Page 111

112 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 31. CASH FLOW STATEMENT - ADDITIONAL INFORMATION - CONTINUED C) RECONCILIATION OF MOVEMENT IN NET DEBT US$m US$m Net debt at beginning of the year 2, ,998.8 Net cash inflow from operating activities (1,339.9) (1,089.2) Net cash outflow from investing activities 1, Net inflow from hedge instruments (6.6) (4.6) Proceeds from issue of ordinary shares (117.4) (326.6) Dividends paid Increase on business acquisitions and disposals Interest accruals, finance leases and other Foreign exchange differences 42.1 (229.4) Net debt at end of the year 2, ,689.9 Being: Current borrowings Non-current borrowings 2, ,777.7 Cash and cash equivalents (128.9) (174.2) Net debt at end of the year 2, ,689.9 D) NON-CASH FINANCING OR INVESTING ACTIVITIES There were no financing or investing transactions during the year which have had a material effect on the assets and liabilities of Brambles that did not involve cash flows. Brambles Annual Report Page 112

113 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 32. COMMITMENTS A) CAPITAL EXPENDITURE COMMITMENTS At 30 June 2013, Brambles had commitments of US$226.2 million (2012: US$192.4 million) principally relating to property, plant and equipment. Capital expenditure contracted for but not recognised as liabilities at reporting date were as follows: Within one year Between one and five years US$m US$m B) OPERATING LEASE COMMITMENTS Brambles has taken out operating leases for offices, operational locations and plant and equipment. The leases have varying terms, escalation clauses and renewal rights. Escalation clauses are rare and any impact is considered immaterial. The future minimum lease payments under such non-cancellable operating leases are as follows: Plant Occupancy US$m US$m US$m US$m Within one year Between one and five years After five years Minimum lease payments , During the year, operating lease expense of US$262.8 million (2012: US$230.5 million) was recognised in the income statement. C) FINANCE LEASE COMMITMENTS Finance leases of plant and equipment are not a material feature of Brambles' funding arrangements. Finance lease commitments are payable as follows: Minimum lease payments Within one year Between one and five years Finance costs US$m Plant US$m Within one year Between one and five years (1.3) (2.0) (0.5) (2.9) (1.8) (4.9) Minimum lease payments recognised as a liability Within one year Between one and five years Brambles Annual Report Page 113

114 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 33. CONTINGENCIES a) b) c) d) e) f) Subsidiaries have contingent unsecured liabilities in respect of guarantees given relating to performance under contracts entered into totalling US$99.5 million (2012: US$116.7 million), of which US$77.0 million (2012: US$94.6 million) is also guaranteed by Brambles Limited. US$16.3 million (2012: US$15.3 million) is also guaranteed by Brambles Limited and certain of its subsidiaries under a deed of cross-guarantee and are included in Note 38B. A subsidiary has guaranteed certain lease obligations of third parties totalling US$2.3 million (2012: US$5.3 million). A subsidiary has provided guarantees to support lease facilities entered into by certain other subsidiaries. Total facilities available amount to US$6.0 million (2012: US$10.3 million), of which US$6.0 million (2012: US$10.3 million) has been drawn. Environmental contingent liabilities Brambles activities have included the treatment and disposal of hazardous and non-hazardous waste through subsidiaries and corporate joint ventures. In addition, other activities of Brambles entail using, handling and storing materials which are capable of causing environmental impairment. As a consequence of the nature of these activities, Brambles has incurred and may continue to incur environmental costs and liabilities associated with site and facility operation, closure, remediation, aftercare, monitoring and licensing. Provisions have been made in respect of estimated environmental liabilities at all sites and facilities where obligations are known to exist and can be reliably measured. However, additional liabilities may emerge due to a number of factors including changes in the numerous laws and regulations which govern environmental protection, liability, land use, planning and other matters in each jurisdiction in which Brambles operates or has operated. These extensive laws and regulations are continually evolving in response to technological advances, scientific developments and other factors. Brambles cannot predict the extent to which it may be affected in the future by any such changes in legislation or regulation. In the ordinary course of business, Brambles becomes involved in litigation. Provision has been made for known obligations where the existence of the liability is probable and can be reasonably quantified. Receivables have been recognised where recoveries, for example from insurance arrangements, are virtually certain. As the outcomes of these matters remain uncertain, contingent liabilities exist for possible amounts eventually payable that are in excess of the amounts provided. Brambles has given vendor warranties in relation to businesses sold in prior years. Brambles has recognised the financial impact of such vendor warranties and adjustments on the basis of information currently available. A contingent liability exists for any amounts which may ultimately be borne by Brambles which are in excess of the amounts provided at 30 June A third party facility leased by Recall had suffered significant structural damage resulting in the facility becoming non-operational. Consequently, Recall has and will continue to incur costs associated with the incident and the relocation of operations to a new facility. Provision, net of insurance proceeds received, has been made in respect of Recall s obligations that are known to exist and can be reliably measured. The provision is Recall s current best estimate of the costs it will incur arising from this matter. There are, however, a number of aspects relating to this matter which have not been finalised and a number of parties are involved in their resolution. At the date of this report, it is not possible to determine when all of these aspects will be finalised. Brambles Annual Report Page 114

115 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 34. AUDITORS' REMUNERATION US$'000 US$'000 Amounts received or due and receivable by PwC (Australia) for: Audit services in Australia: - audit and review of Brambles' financial reports 2,090 2,068 - other assurance services ,139 2,081 Other services: - finance due diligence 692 2, ,549 Total remuneration of PwC (Australia) 2,831 4,630 Amounts received or due and receivable by related practices of PwC (Australia) for: Audit services outside Australia: - audit and review of Brambles' financial reports 4,238 4,488 - other assurance services ,249 4,611 Other services: - tax advisory services other Total remuneration of related practices of PwC (Australia) 4,468 4,816 Total auditors' remuneration 7,299 9,446 From time to time, Brambles employs PwC on assignments additional to their statutory audit duties where PwC, through their detailed knowledge of the Group, are best placed to perform the services from an efficiency, effectiveness and cost perspective. The performance of such non-audit related services is always balanced with the fundamental objective of ensuring PwC's objectivity and independence as auditors. To ensure this balance, Brambles' Charter of Audit Independence requires that the Audit Committee approve any management recommendation that PwC undertake non-audit work (with approval being delegated to the Chief Financial Officer within specified monetary limits). Non-audit assignments during the year primarily related to finance due diligence for the Recall proposed demerger, treasury consulting service, compliance tracking system, regulatory reporting and tax consulting advice. In 2012, non-audit assignments primarily related to the Recall divestment process, acquisition due diligence, tax consulting advice and implementation of a compliance tracking system. NOTE 35. KEY MANAGEMENT PERSONNEL A) KEY MANAGEMENT PERSONNEL COMPENSATION Short term employee benefits 14,700 13,424 Post employment benefits Other benefits Termination/sign-on/retirement benefits 1,453 2,587 Share-based payment expense 8,899 6,585 25,501 23,134 Brambles Annual Report Page 115

116 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 35. KEY MANAGEMENT PERSONNEL - CONTINUED B) EQUITY INSTRUMENTS DISCLOSURE RELATING TO KEY MANAGEMENT PERSONNEL The number of ordinary shares and options/share rights in Brambles held during the financial year by key management personnel, including their related parties, are set out below: Name and holdings Balance at start of the year Granted during the year Exercised during the year Lapsed during the year Changes during the year Balance at end of the year 1 Vested and exercisable at end of the year 2013 Executive Director T J Gorman Ordinary shares 128, , ,148 - Share rights 1,316, , , ,735-1,525,383 - Current Key Management Personnel Z Todorcevski Ordinary shares ,091 78,591 - Share rights - 406,298 77, ,392 - J Holley Ordinary shares ,596 24,825 - Share rights 125,859 83,873 32, ,427 - P S Mackie Ordinary shares 2, ,890 15,055 - Share rights 375, ,843 25,888 27, ,483 - D A Pertz 2 Ordinary shares Share rights K Pohler Ordinary shares Share rights 251, ,637 - J D Rabbino - Ordinary shares Share rights - 97, ,419 - N P Smith Ordinary shares 4, ,359 75,491 - Share rights 376, ,608 46,822 49, ,068 - Former Key Management Personnel G J Hayes Ordinary shares Share rights 1,159, , , ,220 - E E Potts Ordinary shares 93, (19,577) 73,482 - Share rights 392, ,635 50, , ,522 - R J Westerbos Ordinary shares 101, (101,495) - - Options/share rights 264, , , ,483-1 Closing balances are as at the end of the year for ongoing employees and as at cessation of employment for those whose employment ended during the year. 2 D A Pertz commenced employment on 1 April Brambles Annual Report Page 116

117 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 35. KEY MANAGEMENT PERSONNEL - CONTINUED Name and holdings Balance at start of the year Granted during the year Exercised during the year Lapsed during the year Changes during the year Balance at end of the year 1 Vested and exercisable at end of the year 2012 Executive Directors T J Gorman Ordinary shares 40, , ,782 - Share rights 955, ,303 94,220 89,629-1,316,336 - G J Hayes Ordinary shares Share rights 735, , ,159,820 - Current Key Management Personnel J Holley Ordinary shares Share rights - 125, ,859 - P S Mackie Ordinary shares ,204 2,165 - Share rights 272, ,093 24,894 37, ,446 - K Pohler Ordinary shares Share rights 251, ,637 - E E Potts Ordinary shares 66, ,452 93,059 - Share rights 346, ,695 37,668 53, ,796 - J D Rabbino Ordinary shares Share rights N P Smith Ordinary shares 2, ,502 4,132 - Share rights 334, ,514 48,682 49, ,931 - R J Westerbos Ordinary shares 101, ,495 - Share rights 116, , ,092 - Former Key Management Personnel J R A Judd Ordinary shares 79, (15,066) 64,370 - Share rights 296, ,444 48, , ,558 - J D Ritchie Ordinary shares 60, (60,302) 22 - Share rights 200, ,103 84, ,799 - K J Shuba Ordinary shares 57, ,020 99,786 - Options/share rights 379, ,243 60, , ,054-1 Closing balances are as at the end of the year for ongoing employees and as at cessation of employment for those whose employment ended during the year. C) OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL Other transactions with key management personnel are set out in Note 36C. Further remuneration disclosures are set out in the Directors' Report on pages 32 to 49 of the Annual Report. Brambles Annual Report Page 117

118 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 36. RELATED PARTY INFORMATION A) BRAMBLES Brambles comprises Brambles Limited and the entities which it controls. Borrowings under the bilateral bank credit facilities are undertaken by a limited number of Brambles subsidiaries. Funding of other subsidiaries within Brambles is by way of intercompany loans, all of which are documented and carry arms-length interest rates applicable to the currency and terms of the loans. Brambles Limited charges Brambles' borrowers an arms-length guarantee fee for the guarantees and cross-guarantees it has given in relation to borrowing facilities, as described in Note 38B. Dividends are declared within the group only as required for funding or other commercial reasons. Brambles has in place cost sharing agreements to ensure that relevant costs are taken up by the entities receiving the benefits. All amounts receivable and payable by entities within Brambles and any interest thereon are eliminated on consolidation. B) JOINT VENTURES Brambles' share of the net results of joint ventures is disclosed in Note 19. C) OTHER TRANSACTIONS Other transactions entered into during the year with Directors of Brambles Limited; with Director-related entities; with key management personnel (KMP, as set out in the Directors' Report); or with KMP-related entities were on terms and conditions no more favourable than those available to other employees, customers or suppliers and include transactions in respect of the employee option plans, contracts of employment and reimbursement of expenses. Any other transactions were trivial or domestic in nature. D) OTHER RELATED PARTIES A subsidiary has a non-interest bearing advance outstanding as at 30 June 2013 of US$1,304,000 (2012: US$1,432,000) to Brambles Custodians Pty Limited, the trustee under Brambles' employee loan scheme. This scheme enabled employees to acquire shares in BIL and has been closed to new entrants since August Brambles Annual Report Page 118

119 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 36. RELATED PARTY INFORMATION - CONTINUED E) MATERIAL SUBSIDIARIES The principal subsidiaries of Brambles during the year were: % interest held at reporting date Name CHEP Place of incorporation CHEP USA USA CHEP Canada, Inc. Canada CHEP UK Limited UK CHEP France SA France CHEP Deutschland GmbH Germany CHEP Espana SA Spain CHEP Mexico SA de CV Mexico CHEP Benelux Nederland BV The Netherlands CHEP Italia SRL Italy Brambles Enterprises Limited UK CHEP South Africa (Proprietary) Limited South Africa CHEP Australia Limited Australia CHEP (China) Company Limited China CHEP Technology Pty Limited Australia CHEP India Pvt Limited India LeanLogistics Inc USA Unitpool AG Switzerland CHEP Pallecon Solutions BV The Netherlands CHEP Pallecon Solutions Pty Limited Australia IFCO IFCO Systems NV The Netherlands Recall Recall Limited UK Recall France SA France Recall Corporation, Inc. USA Recall do Brasil Ltda Brazil Recall Information Management Pty Limited Australia Recall Deutschland GmbH Germany Brambles HQ Brambles Industries Limited Australia Brambles Holdings (UK) Limited UK Brambles International Finance BV The Netherlands Brambles USA Inc. USA Brambles North America Incorporated USA Brambles Finance plc UK Brambles Finance Limited Australia In addition to the list above, there are a number of other non-material subsidiaries within Brambles. Investments in subsidiaries are primarily by means of ordinary or common shares. All material subsidiaries prepare accounts with a 30 June balance date. Brambles Annual Report Page 119

120 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 36. RELATED PARTY INFORMATION - CONTINUED F) DIRECTORS' INDEMNITIES Under its constitution, to the extent permitted by law, Brambles Limited indemnifies each person who is, or has been a Director or Secretary of Brambles Limited against any liability which results from facts or circumstances relating to the person serving or having served in the capacity of Director, Secretary, other officer or employee of Brambles Limited or any of its subsidiaries, other than: (a) in respect of a liability other than for legal costs: (i) a liability owed to Brambles Limited or a related body corporate; (ii) a liability for a pecuniary penalty order under section 1317G of the Act or a compensation order under section 1317H of the Act; or (iii) a liability that is owed to someone (other than Brambles Limited or a related body corporate) and did not arise out of conduct in good faith; and (b) in respect of a liability for legal costs: (i) in defending or resisting proceedings in which the person is found to have a liability for which they could not have been indemnified under paragraph (a)(i) above; (ii) in defending or resisting criminal proceedings in which the person is found guilty; (iii) in defending or resisting proceedings brought by ASIC or a liquidator for a court order if the grounds for making the order are found by the Court to be established; or (iv) in connection with proceedings for relief to any persons under the Act in which the Court denies the relief. Paragraph (b)(iii) above does not apply to costs incurred in responding to actions brought by ASIC or a liquidator as part of an investigation before commencing proceedings for the Court order. As allowed by its constitution, Brambles Limited has provided indemnities from time to time to Directors, Secretaries or other Statutory Officers of its subsidiaries (Beneficiaries) against all loss, cost and expenses (collectively Loss) caused by or arising from any act or omission by the relevant person in performance of that person's role as a Director, Secretary or Statutory Officer. The indemnity given by the Company excludes the following matters: (a) any Loss to the extent caused by or arising from an act or omission of the Beneficiary prior to the effective date of the indemnity; (b) any Loss to the extent indemnity in respect of that Loss is prohibited under the Corporations Act (or any other law); (c) any Loss to the extent it arises from private or personal acts or omissions of the Beneficiary; (d) any Loss comprising the reimbursement of normal day-to-day expenses such as travelling expenses; (e) any Loss to the extent the Beneficiary failed to act reasonably to mitigate the Loss; (f) any Loss to the extent it is caused by or arises from acts or omissions of the Beneficiary after the date the indemnity is revoked by the Company in accordance with the terms of the indemnity; (g) any Loss to the extent it is caused by or arises from any breach by the Beneficiary of the terms of the indemnity. Insurance policies are in place to cover Directors, Secretaries and other Statutory Officers of Brambles Limited and its subsidiaries, however the terms of the policies prohibit disclosure of the details of the insurance cover and the premiums paid. NOTE 37. EVENTS AFTER BALANCE SHEET DATE On 2 July 2013, Brambles announced its intention to demerge its Recall business by listing a new holding company, Recall Holdings Limited, on the ASX. Brambles intends to convene a meeting for shareholders to vote on the demerger proposal in December Subject to the outcome of this shareholder vote and the satisfaction of other conditions (including the relevant court and regulatory approvals), the final separation of Recall from Brambles is expected to occur shortly thereafter. As Brambles has not commenced the restructuring necessary to effect the proposed de-merger and the necessary shareholder and court approvals have not been obtained, Recall has been classified as a Continuing operation at 30 June 2013 (consistent with classification at 30 June 2012) in accordance with applicable Accounting Standards. Other than those outlined in the Directors' Report or elsewhere in these financial statements, there have been no other events that have occurred subsequent to 30 June 2013 and up to the date of this report that have had a material impact on Brambles' financial performance or position. Brambles Annual Report Page 120

121 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS - CONTINUED for the year ended 30 June 2013 NOTE 38. PARENT ENTITY FINANCIAL INFORMATION A) SUMMARISED FINANCIAL DATA OF BRAMBLES LIMITED Parent entity US$m US$m Profit for the year Other comprehensive income for the year (754.7) (1,065.5) Total comprehensive loss (352.1) (542.8) Current assets Non-current assets 8, ,413.6 Total assets 8, ,430.5 Current liabilities Non-current liabilities Total liabilities Net assets 7, ,300.3 Contributed equity 6, ,484.1 Share-based payment reserve Foreign currency translation reserve ,658.6 Retained earnings Total equity 7, ,300.3 B) GUARANTEES AND CONTINGENT LIABILITIES Brambles Limited and certain of its subsidiaries are parties to a deed of cross-guarantee which supports global financing credit facilities available to certain subsidiaries. Total facilities available amount to US$2,134.3 million (2012: US$2,192.8 million) of which US$929.2 million (2012: US$1,003.5 million) has been drawn. Brambles Limited and certain of its subsidiaries are parties to guarantees which support US Private Placement borrowings of US$364.0 million (2012: US$364.0 million) by a subsidiary. Brambles Limited and certain of its subsidiaries are parties to a guarantee which support notes of US$750.0 million (2012: US$750.0 million) issued by a subsidiary to qualified institutional buyers in accordance with Rule 144A and Regulation S of the United States Securities Act. Brambles Limited and certain of its subsidiaries are parties to a guarantee which support notes of million (2012: million) issued by a subsidiary in the European bond market. Brambles Limited has guaranteed repayment of certain facilities and financial accommodations made available to certain subsidiaries. Total facilities and financial accommodations available amount to US$569.8 million (2012: US$569.5 million), of which US$130.5 million (2012: US$138.8 million) has been drawn. Other than these guarantees, the parent entity did not have any contingent liabilities at 30 June 2013 or 30 June C) CONTRACTUAL COMMITMENTS Brambles Limited did not have any contractual commitments for the acquisition of property, plant and equipment at 30 June 2013 or 30 June Brambles Annual Report Page 121

122 DIRECTORS' DECLARATION In the opinion of the Directors of Brambles Limited: (a) the financial statements and notes set out on pages 57 to 119 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and giving a true and fair view of the financial position of Brambles as at 30 June 2013 and of its performance for the year ended on that date; (b) there are reasonable grounds to believe that Brambles Limited will be able to pay its debts as and when they become due and payable. A statement of compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board is included within Note 1 to the financial statements. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act This declaration is made in accordance with a resolution of the Directors. G J Kraehe AO Chairman T J Gorman Chief Executive Officer 22 August 2013 Brambles Annual Report Page 122

123 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF BRAMBLES LIMITED Report on the financial report We have audited the accompanying financial report of Brambles Limited (the Company), which comprises the consolidated balance sheet as at 30 June 2013, and the consolidated income statement, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the Directors declaration for Brambles (the consolidated entity). The consolidated entity comprises the Company and the entities it controlled at the year s end or from time to time during the financial year. Directors responsibility for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the Directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditors responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report. Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act PricewaterhouseCoopers, ABN Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 DX 77 Sydney, Australia T , F , Liability limited by a scheme approved under Professional Standards Legislation. Brambles Annual Report Page 123

124 INDEPENDENT AUDITORS REPORT - CONTINUED TO THE MEMBERS OF BRAMBLES LIMITED Auditors opinion In our opinion: (a) the financial report of Brambles Limited is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the consolidated entity s financial position as at 30 June 2013 and of its performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the remuneration report included in pages 32 to 49 of the Directors report for the year ended 30 June The Directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditors opinion In our opinion, the remuneration report of Brambles Limited for the year ended 30 June 2013, complies with section 300A of the Corporations Act Matters relating to the electronic presentation of the audited financial report This auditors report relates to the financial report and remuneration report of Brambles Limited (the Company) for the year ended 30 June 2013 included on Brambles Limited web site. The Company s Directors are responsible for the integrity of the Brambles Limited web site. We have not been engaged to report on the integrity of this web site. The auditors report refers only to the financial report and remuneration report named above. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report or the remuneration report. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial report and remuneration report to confirm the information included in the audited financial report and remuneration report presented on this web site. PricewaterhouseCoopers Paul Bendall Sydney Partner 22 August 2013 Mark Dow Sydney Partner 22 August 2013 Brambles Annual Report Page 124

125 AUDITORS INDEPENDENCE DECLARATION As lead auditor for the audit of Brambles Limited for the year ended 30 June 2013, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Brambles Limited and the entities it controlled during the period. Paul Bendall Sydney Partner 22 August 2013 PricewaterhouseCoopers PricewaterhouseCoopers, ABN Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 DX 77 Sydney, Australia T , F , Liability limited by a scheme approved under Professional Standards Legislation. Brambles Annual Report Page 125